Nokia declares first victory in Qualcomm phone wars

While the companies are fighting over minor technologies and patents, the argument boils down to one overriding principle: the value of the radio technology in proportion to the overall value of the phone. Because the W-CDMA interface is responsible for the core functionality of the device--enabling every voice call and transmitting and receiving every data packet—Qualcomm places a high value on the radio itself where its intellectual property is strongest. According to Qualcomm, it typically receives 5% of the cost of a UMTS device in royalties. Nokia, however, maintains that the radio has become secondary to the computing and multimedia aspects of the device. Nokia said it previously paid Qualcomm about 1% of the device cost in royalties, but believes that rate should be far less.

“There is value in the radio,” Nokia chief technology officer Tero Ojanpera said in an interview last week at Nokia World. “It’s part of the value of the phone, but that value is much smaller than it was several years ago. Nokia has developed multimedia, voice and data capabilities that all contribute to the value of the phone. To say the radio is 100% of the value of the phone is not correct.”

Qualcomm filed the initial complaint against with the ITC in 2006, taking a page from its other antagonist Broadcom’s book. The rival chipmaker took Qualcomm to ITC over a similar patent issue and succeeded in getting an import ban on Qualcomm’s 3G chips into the U.S. But Qualcomm appealed the case the federal courts and succeeded in getting the ban watered down to the point it had no effect on chip imports whatsoever. Nokia, however, is taking its own shot at an ITC ban of Qualcomm chips. It filed its own complaint against Qualcomm in August.

Intellectual property has always been a primary component of Qualcomm’s business model, and the company has stated it would pursue patent infringement cases rigorously. But the constant battling with Nokia, Broadcom and other GSM vendors has taken its toll on Qualcomm. Last month Qualcomm reported stellar 3^rd quarter numbers, but for the first time it warned that its legal battles would start affecting the bottom line. Qualcomm said it expected to spend $200 million in legal fees alone in 2008.