All Eyes On Latest Qualcomm-Nokia Court Battle’s Impact On Patents And Licensing

By Tatum Anderson for Intellectual Property Watch
An important court case in the ongoing saga between two of the mobile industry’s most influential technology firms begins next week.

The case is a crucial stage in the ongoing disagreement between the two equipment manufacturers – Finnish Nokia and US Qualcomm – that has become increasingly acrimonious over recent years and resulted in numerous patent infringement cases all over the world.

The US Delaware Court of Chancery will examine contractual rather than patent infringement issues.

But its outcome is so critical that several patent lawsuits that Qualcomm and Nokia are fighting around the world have been frozen until it reaches its decision. It will convene for eight days and is expected to make its decision by September, according to sources close to the case.

At the core of the case will be an assessment of a company’s obligations when it joins a technology standards-setting body such as the European Technology Standards Institute (ETSI), which is responsible for establishing vital mobile phone standards. Under the terms set by standards bodies like ETSI, licences to use intellectual property should be granted on fair, reasonable, and non-discriminatory (FRAND) terms.

The main thrust is of the case is that Nokia wants to prevent Qualcomm from using injunctions when it claims there is an infringement of patents related to a technology standard. An injunction is immensely powerful tool that can prevent a company from selling or importing goods.

According to a pre-briefing document, seen by Intellectual Property Watch, Nokia says standards body obligations nullify the right to take out injunctions. “An intellectual property rights holder who had declared patents to be essential to an ETSI standard and voluntarily submitted a FRAND undertaking … is not entitled to an injunction or exclusion order … except in extraordinary circumstances,” it said.

According to Ilya Kazi, from patent and trademark attorneys Mathys & Squire, injunctions have advantages and disadvantages. They serve a very useful purpose because they enforce the fundamental right of an intellectual property holder to prevent others from using an invention, if they cannot agree on commercial terms. However, a patent might be one of hundreds or thousands of patented innovations within a complex technology standard. In such as case, he said, “Such a patentee can use the threat of an injunction aggressively to demand as high a royalty as he likes.”

The injunction, however, is a tool both companies have tried to use against each other in the past. By the time Nokia filed its case at the Delaware court, Qualcomm had filed a legal action at the US International Trade Commission (ITC), an organisation that uses the injunction as its prime remedy. In August last year, Nokia filed a case alleging Qualcomm has engaged in unfair trade practices and infringement of five patents in CDMA and WCDMA/GSM (mobile technology) chipsets at the ITC.

The second element of the Delaware case has been added more recently. It relates to a cross-licensing deal between the two companies and is core to the patent war being waged between the two companies.

Essentially, the two companies cannot agree on a new intellectual property licensing agreement. The original deal, signed in 1992, expired in April last year and permitted Nokia to use some of Qualcomm’s patents. In return, Qualcomm was granted rights to market Nokia’s components until April 2007. The so-called cross-licensing deal also contained an option for Nokia to extend the existing contract until 2008, if a new deal had not been reached.

The Delaware case will address the dispute over whether Nokia has taken the option to extend the contract.

Nokia says it has not, while Qualcomm believes Nokia’s continuing use of its intellectual property – by selling mobile phones containing its technology – is evidence enough that it has opted to extend the terms of the deal. Indeed, Qualcomm approached the American Arbitration Association last year to rule that this is the case.

The Delaware court is now taking over the issue from the American Arbitration Association case.

If the Delaware court deems Nokia to have extended the contract, it is unclear how this will affect royalty fees Nokia owes Qualcomm. Nokia has been paying a sum substantially lower than Qualcomm says is required under the cross-licensing deal. (Nokia had provided several payments to Qualcomm via an escrow account – for the use of Qualcomm’s patents in UMTS handsets over consecutive quarters). But interestingly, the main reason for bringing the case in 2006 appears to have fallen from focus.

When Nokia first approached the court Delaware Court in 2006, the case was billed as having far-reaching implications for the mobile industry because it promised to define how FRAND could be used. Nokia had filed the case asking the court to order Qualcomm to abide by obligations it had made in FRAND-based contracts as well as a separate request on injunctions.

But although Nokia is arguing in Delaware that Qualcomm is still breaching its obligation to provide licences on FRAND terms, it appears to focusing far more on the implications of injunctions in this case.

The Delaware case is actually unlikely to fix the fundamental disagreement between Nokia and Qualcomm – the commercial terms of the cross-licensing agreement itself. Nokia believes Qualcomm’s royalty fees are too high and Qualcomm says they are appropriate for quality of the technology patents it holds. The disagreements, then, could conceivably continue.

Qualcomm was unable to respond by deadline.

Tatum Anderson may be reached at info@ip-watch.ch.