Nokia Accuses Qualcomm of Double Dipping

Handset vendor Nokia announced today that it has asked
courts in Germany and the Netherlands to rule that telecommunications
technology vendor Qualcomm isn’t entitled to royalties on
intellectual property for which it has already collected royalties from a
third party.

Specifically, Nokia is asking the European courts to rule that Nokia doesn’t
owe Qualcomm royalties on sales of phones containing chipsets manufactured
by Texas Instruments , because Qualcomm has already
collected royalties on those chipsets. Nokia’s claim is based on a
legal principle of patent exhaustion.

“What we’re challenging is whether or not this practice of double royalty is
legal,” Nokia spokesman Bill Plummer told internetnews.com.

Qualcomm said Nokia’s position with regards to exhausted patents
is “demonstrably false.” In a statement, Qualcomm also noted that Nokia has
implicitly admitted as much since, in the past, it has paid royalties to
Qualcomm on handsets that incorporate chipsets supplied by Texas
Instruments.

Moreover, Qualcomm has brought suits of its own against Nokia for patent
infringement in the United States, Germany, France, Italy and China and has
brought a complaint before the U.S. International Trade Commission. Qualcomm
said Nokia’s actions today “are merely the latest in a series of
attempts by Nokia to avoid or delay a determination on the merits that
Nokia’s GSM/GPRS and EDGE subscriber products infringe Qualcomm’s patents.”

One reason Nokia may have brought its action in Europe is that the
exhaustion principle was dealt a blow by federal courts in a 1992 decision
explained in this amicus brief brought by the Electronic Freedom Foundation in an unrelated
case.

But Plummer denied Nokia is venue shopping. “The exhaustion principle
is a fundamental principle in European law, and the courts we have gone to
have a strong understanding of the definition and application of the
principle, and that’s why we’ve chosen to go there,” he said.

Current Analysis analyst Avi Greengart told internetnews.com that the
suit “goes to the heart of how you allocate intellectual property in core
technologies that serve markets where multiple parties have invested in and
own parts of the technologies.”

Hanging over these suits and countersuits like an appointment with the
dentist is the fact that a large part of the cross-licensing agreements
between the two companies will expire on April 9, 2007. Qualcomm’s
intellectual property is largely in CDMA technology, while most of Nokia’s
is in GSM.

While Nokia has said it will no longer manufacture handsets based on CDMA
technology, its new-generation phones based on WCDMA still contain some CDMA
technology. The companies are currently negotiating an extension of the
agreements so that both sets of technologies can be incorporated into new
handsets.

The new cross-licensing agreements, if they are reached, will determine how
much royalty Nokia would have to pay Qualcomm for its portion of
intellectual property contained in those next-generation phones.

Plummer confirmed that negotiations on this issue are ongoing but said
it would be inappropriate to characterize how they are proceeding.

“We remain committed to negotiating in good faith toward a
mutually acceptable arrangement that takes into account the relevant
intellectual property rights of both parties and the value of those rights in
terms of the total,” he said.

He accused Qualcomm of failing to live up to its commitment to license its
technology “on fair, reasonable and non-discriminatory terms.”

Both parties have a lot to lose if the negotiations fail: Nokia, which could
lose significant margins on revenues, and Qualcomm, which has a business
model based on licensing technology. “Everyone still needs to remain in
business; it’s just a matter of what the terms are,” said Greengart.