TI Victory in Licensing Dispute

The Delaware Supreme Court ruled on Thursday that Texas Instruments breach of a 2000 cross-licensing agreement with Qualcomm wasn’t enough to void the agreement. Analysts said the ruling was good for competition in the CDMA market.

It’s a market Qualcomm , which holds basic patents in CDMA, rules with an iron fist.

“A lot of people bash Qualcomm for the amount of money they’re commanding for their IP rights for each phone,” said In-Stat analyst David Chamberlain. “Despite that, even all the GSM people are upgrading to CDMA technologies. So the issue of the cost of Qualcomm IP rights has been a big one.”

In-Stat forecasts that worldwide CDMA subscriptions will grow from 275 million in 2005 to 670 million by 2009.

Chamberlain doubts that CDMA licensing costs have hampered the market — but cheaper chips certainly could juice it up. “Anytime there’s competition, even moving from a monopoly to a duopoly, there’s an opportunity to reduce those costs.”

Today’s ruling ends litigation between the companies and maintains the terms of the cross-licensing agreement.

“The only question here was whether or not Qualcomm could terminate their license because of this breach,” said Qualcomm spokesman Jeremy James. “The ruling was that we could not terminate.”

In 2000, Qualcomm and Texas Instruments (TI) inked a cross-licensing deal that gave TI the right to incorporate Qualcomm intellectual property in the CDMA air interface for wireless telecommunications, while Qualcomm could use TI DSP and analog patents; it covered all future patents through December 2005, as well.

CDMA was the dominant protocol for cellular communications in the United States; the agreement was designed to allow both companies to offer integrated circuits for all wireless standards in use.

Neither Qualcomm nor TI would comment on the specifics of the agreement, but Bloomberg News reported that it allowed TI to use some Qualcomm inventions at no charge.

The trouble began around the time that TI announced in May 2003 that it would expand its presence in the CDMA market. TI already was a major player in the GSM market, providing chips for a variety of phones. But Qualcomm, with ownership of most of the basic IP for CDMA, was the dominant supplier of that flavor of chips.

Later that month, it forged a partnership with STMicroelectronics and Nokia to offer an entire DMA 2000 1X chipset. Nokia was already using the chipset; the plan was to market it to other manufacturers.

The lawsuits began.

In July 2003, Qualcomm sued TI, claiming it had breached confidentiality clauses in the agreement. Qualcomm asked for damages and termination of the agreement.

In September, TI countersued, arguing that the wireless giant had breached the contract. In a statement issued at the time, TI general counsel said the company had brought the action after it heard reports that its supposed partner was offering royalty discounts to handset manufacturers if they bought their chipsets directly from Qualcomm.

In July 2004, the court ruled that TI was in breach of the agreement and set a trial date to determine damages. It also ruled that Qualcomm hadn’t breached the agreement, dismissing TI countersuit.

However, it wouldn’t let Qualcomm terminate the licensing agreement — a win for TI, which could keep on with its CDMA strategy.

Qualcomm later abandoned its quest for damages for the breach, but pushed the quest to end the agreement all the way to the Delaware Supreme Court.

“This ruling does not change the earlier finding that TI had in fact breached the confidentiality clause of the agreement,” said Qualcomm James. “They still are bound by the confidentially provisions and the other provisions of the agreement.”

James wouldn’t comment on industry gossip that, under the agreement, TI didn’t pay Qualcomm for the technology licenses.

Analysts said it was unlikely that TI really wanted to terminate the agreement — even though it spent five years prosecuting the case.

Clay Ryder, an analyst with the Sageza Group, speculated that Qualcomm might have intended to send a message to the industry: “We are the source for CDMA. Play by our rules, or we’ll take it away. But the courts have recognized it’s such a basic component of networks that to allow that kind of behavior regarding their patents may be predatory,” he said.

Ryder said it would be foolish in the long-term for Qualcomm to revoke the rights of any licensor.

“It’s a revenue stream,” he said. “And CDMA is not a major technology in the rest of the world. Anything that lessens distribution of the technology in the long term isn’t good for Qualcomm.”

said Ira Brodsky, president of Datacomm Research, agreed. “You have to wonder if Qualcomm really believed they could have got it terminated, or if was just an attempt to pressure TI to reach some sort of other agreement,” Brodsky said.

“We’ll probably never know that. If anything is the residue of this, it’s that Qualcomm doesn’t always get their way in court. They won a lot of cases enforcing licenses. In this case they were trying to terminate a license, and the court wouldn’t go along with that.”