Nokia fired a legal salvo designed to humble Qualcomm in two of its hottest new areas, MediaFLO mobile TV and its Brew content delivery system, claiming that both use patented Nokia technologies and making it clear it believes that the entire MediaFLO technology is a direct copy of DVB-H.
If Nokia brings a swift action to court and gets a positive decision it could potentially swing not only the Qualcomm Nokia intellectual property battle in its favor, but also halt the progress of MediaFLO around the world, in favor of the DVB-H technology that it favors and which it mostly invented.
This week Qualcomm announced that Hong Kong’s PCCW would trial the MediaFLO technology. PCCW has been trialing both DVB-H, since 2006, and more recently MBMS, using Huawei base stations and Qualcomm chips.
Nokia filed patent suits this week in the Eastern District of Texas Court, a court known to be expert in patent dealings, with a reputation for supporting patent holders. The filing was presaged a few weeks ago when Nokia said that it would file suit over 6 Nokia implementation patents, but never hinted that it would hit such fruitful heartlands as MediaFLO and Brew.
Naturally Nokia is seeking damages and injunctive relief, pretty much in line with the hard stance that Qualcomm has adopted with Nokia handsets that it says use its own patents, in legal actions filed since their April deadline for renewing their royalty agreements came and went.
“Nokia has a strong history of innovation in IP broadcast television and mobile download environments predating Qualcomm’s activities,” said Tero Ojanper’, chief technology officer, Nokia. “This is another example where Qualcomm has effectively copied Nokia’s innovations. We believe that, for MediaFLO to evolve and for Brew to remain viable, Qualcomm needs access to these and many other patented Nokia inventions.”
At Faultline we more than once made the point that for Qualcomm to be licensing MediaFLO to other companies would rely on them also having access to Nokia patents. Nokia may never want to make MediaFLO handsets, but the very idea that it might have to sign a wide ranging deal with Qualcomm for patents, just to offer technology which it may have invented itself, would have been too much for it.
MediaFLO is indeed extremely similar to the DVB-H standard based on OFDM, forward error correction, time interleaving, and frequency interleaving. In fact for either one of these companies to offer mobile TV, they almost certainly need the other’s patents and a counter (counter) suit to say that DVB-H relies on Qualcomm technology is also likely.
The Nokia bombshell comes just days after the US International Trade Commission (ITC) ordered Qualcomm chips, and future downstream products which use them, to be barred from importation into the US.
Financial markets took this to be a small and unimportant decision, reasoning that Qualcomm has the remedy of both asking a US court to place a stay on the execution of the order while it appeals it, and that it can also build a work around for the power saving patents belonging to Broadcom which are at the heart of the ITC case. Qualcomm also called on the US president to veto the execution of the order.
A previous case brought by Qualcomm, attempting to enforce Broadcom into payments of extremely large royalties for a tiny part of the H.264 essential patents, brought the counter suits that have left Qualcomm’s intellectual property revenues held hostage to fortune.
Qualcomm made around $850 million of revenue last quarter on intellectual property fees, most of which goes straight to the bottom line. Some $3.3 billion a year of royalties are recorded on Qualcomm’s books, roughly the same amount it makes in profit. Any significant dent to that revenue would see the company down graded overnight.
Nokia’s position, and a reasonable one, is that that are many patents that it holds which Qualcomm will find are essential to continue certain of its businesses. Nokia would probably privately accept that it makes a lot of money out of using Qualcomm inventions. But the usual thing for two such innovative giants to do is to agree that the other can use all of the patents collectively, with no payments being made.
For Qualcomm that is irksome because it is used to making serious money out of its patents, despite having an extremely good second string of business in actually designing specific chips for wireless markets. For instance it has a commanding lead in second generation 3.6 Mbps HSDPA chips.
But it gets so much of its revenue, believed to be something close to $450 million a year from Nokia royalty payments, that it can ill afford to see that drop to something more reasonable, say $200 million, or evaporate all together. On the other hand Nokia just wants to remove the burden of one of its biggest royalty outgoings, while other smaller rivals will still have to pay royalties ‘ which would result in yet cheaper Nokia handsets with a bigger margin, which in turn would drive up its market share.
So while US financial analysts see the Broadcom ban unlikely to cause Qualcomm any lasting harm, and also see any enactment of the ban as hurting both Verizon Wireless and AT&T Mobility unfairly, as bystanders, the larger issue of how does Qualcomm proceed in royalty terms now that it is moving outside of its traditional CDMA boundaries, remains a larger question.
In CDMA, the core invention of Qualcomm, it reigns supreme. While most rivals have failed successfully to make alternative CDMA chips, those that have tried were deterred because they would have incurred a substantial royalty. But in the world of W-CDMA, a different technology, with IPR contributions equally made by Ericsson, Nokia, Qualcomm and others, Qualcomm is in no position to play the game ‘my inventions are worth more than yours,’ and will consistently find itself in a courtroom while it continues to take that position.
Qualcomm could, and should, take the view that within CDMA it can keep the status quo, and outside CDMA it must alter its worldview of royalties. Such a step would see it accept an honorable draw with Nokia in its current royalty dispute, while retaining much of its existing IPR revenues, its vast profits and its enormous valuation.
To this extent the suit which Qualcomm took out against Broadcom to stop it selling chips to its ‘best friends’ Samsung and LG, over a tiny proportion of the H.264 standard which it had failed to declare to the H.264 standards body, has been its undoing. The violent reaction from Broadcom has changed the unwritten rule that you don’t mess with Qualcomm IPR, and Broadcom has been played by the cellular equipment suppliers to do their dirty work, roughing up the US upstart.
All of this happened despite a late accord signed between Broadcom and Qualcomm, in March, because it was too late to avert the ITC decision and too late to switch off the renewed bravery of Nokia in the courtroom. That settlement of cases brought in San Diego, covered six Broadcom patents and four Qualcomm patents, and actually covered the very power control circuits used in CDMA and W-CDMA handsets that are at issue with the ITC.
But an ITC complaint cannot be stopped once started, just as a European anti-trust suit can’t be pulled, and these will have to run their course.