Nokia Deals Qualcomm a (Small) Blow

Posted by: Olga Kharif on December 12, 2007

If a face-off between Qualcomm and Nokia were a boxing match (and the longest-ever boxing match went on for 110 rounds), Dec. 12 would have marked round 50. Punch – and Nokia serves Qualcomm a black eye. But Qualcomm is by no means knocked out.

On Dec. 12, the International Trade Commission made an initial determination saying that Nokia does not infringe on three Qualcomm patents related to a technology called GSM, used by the likes of AT&T and T-Mobile. The decision, which Qualcomm plans to appeal, is significant for Nokia: If infringement were found, the ITC would have had the power to prohibit the world’s largest cell-phone maker from importing any GSM phones into the U.S. That could have had disastrous consequences for the handset maker and its carrier customers.

Now, Nokia is in the clear. And what about Qualcomm? Clearly, the chipmaker has suffered a set-back – particularly on the pr front. The ITC decision is the first court decision in a slew of legal cases pending between the two companies. “It provides the first test of Qualcomm’s patent portfolio,” says Rick Simonson, Nokia’s chief financial officer. Well, the first test is certainly not the final test.

That said, several of the same GSM patents also figure in other legal cases pending between the two companies in Europe, Simonson says. The companies, which are using litigation as a lever in negotiating a new cross-licensing royalty agreement, are currently involved in 11 lawsuits around the world.

As the two companies exchange blows, Wall Street’s expectations of royalties Qualcomm will receive once the companies reach a cross-licensing royalty agreement, possibly in mid-2008, are in flux. “A lot of people would have guessed at around 4% [of a handset’s cost] around 1-1/2 years ago,” says Mark McKechnie, an analyst with American Technology Research. “Now, we’d guess around 2%.”

But then, the ITC decision is only one victory. “They lost a battle, but not a war,” McKechnie says.

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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