Qualcomm, Nokia patent fight informs larger tech debate

Qualcomm and Nokia's latest royalty battle is still stalemated, as the companies clash over cross-licensing agreements for each other's wideband-CDMA and GSM technology. It's not their first dispute and most likely won't be their last, but Nokia isn't Qualcomm's only antagonist. Qualcomm has become embroiled in intellectual property rights, or IPR, and competitive disputes worldwide, all of which share a central theme — that Qualcomm is using its substantial holdings in W-CDMA IPR to profit unfairly at the expense of the rest of the wireless industry.

The larger legal debate is still at issue, but the battle may be spilling out beyond the courtroom. Industry analysts say Qualcomm's aggressive pursuit of its IPR claims has created a cultural clash among the traditional wireless industry players that may never be resolved. As a result, the GSM vendors may try to shut Qualcomm and its technology out of their future technology and business strategy decisions.

The GSM community has always cross-licensed its IPR for free, said Roger Entner, senior vice president and communications analyst for IAG Research. Since all of the IPR holders were product manufacturers, the goal was to promote the industry. So when Qualcomm emerged as a pure-play IPR player whose end goal was to generate patent royalties, the GSM community blanched, he said.

“Here comes the outsider Qualcomm, playing party pooper and rubbing everyone the wrong way,” Entner said. “Qualcomm upset the status quo.”

Now the GSM community, led by Nokia, is fighting back, challenging Qualcomm's royalty rates and its premise that the radio technology embedded in their handsets forms the primary value of the phone, and pushing their own patent disputes against Qualcomm's chipset division. The GSM community doesn't want better royalty rates, Entner said, they want to see technology freely cross-licensed. That only happens if Qualcomm is cut out of the equation, an unlikely scenario considering its massive IPR portfolio, he said.

There have already been efforts to do just that. In South Korea, the WiBro initiative was driven by vendors and regulators tired of paying royalties on Qualcomm CDMA technologies, said Emmy Johnson, principle analyst for Sky Light Research.

“Look at how much South Korea invested in alternate technologies,” she said. “There is a clear industry feeling that they tired of paying [CDMA] royalties to Qualcomm. It's why they specifically pursued an OFDM technology.”

That trend is continuing as all global vendors look toward orthogonal frequency division multiple access (OFDMA) technologies as the next-generation radio. Almost all of the major infrastructure vendors have built up WiMAX portfolios (of which WiBro is now part). As for the continuation of the cellular line, vendors are looking toward OFDM for the 3GPP's long-term evolution and the 3GPP2's ultra mobile broadband, despite the fact that carriers have expressed only lukewarm interest in the technologies so far.

Now, however, Qualcomm has built a sizeable OFDM portfolio with its $600 million acquisition of Flarion Technologies and its acquisition of TeleCIS Wireless, bringing Qualcomm the system-on-a-chip technology to print dual-mode WiMAX chipsets. The same IPR lock Qualcomm has on 3G could extend to 4G.

That's why today's IPR battles may be merely posturing, said Bob Egan, chief analyst for the TowerGroup. Regardless of which future path the industry chooses — CDMA or OFDM — it will have to deal with Qualcomm. Nokia has gotten more aggressive, seeing what leverage it can get out of Qualcomm in cross-licensing agreements going forward and vilifying Qualcomm as the Microsoft of wireless, Egan said. But ultimately Nokia will have to swallow its royalty payments, Egan said. After another year or two of arguing, there will be serious consequences, he said.

“We haven't seen the operator community weigh in on this fight in a significant way yet,” Egan said. “The carriers are both of their customers at the end of the day. Right now, they're in reactive mode trying to populate their 3G networks, but eventually they'll start paying attention.”