The end of the Qualcomm-Nokia patent wars, heralded last week by a settlement which is still shrouded in mystery with a complete lack of detail, is a massively significantly event, not just for handset pricing everywhere, but also for the progress of the handset towards becoming the ubiquitous entertainment vehicle that it appears destined to become. We have been saying for some time that the two cellular majors owed it to shareholders not to go through with their legal actions.
Both giants have mobile TV and video acceleration and graphics breakthroughs in their armory, as well as plans to usurp gaming from the existing powers and an ability to drive down service pricing by better and better use of cellular spectrum for voice and internet browsing. Put all this together into a shared patent pool and we will likely see these two doing business together and creating very new cellular entertainment experiences, quite cheaply. For some time now Nokia has refused point blank to buy any chips from Qualcomm.
The outcome, as Nokia strives to drive as much function, into the cheapest devices, is likely to be cheaper high end handsets and new functionality from Nokia. For its part Nokia will be paying Qualcomm far less for patent licensing, though how much less, it is unclear right now. But given its recent success in chip design, Qualcomm is likely to be able to make up most of its lost ground in royalties but increased business, especially if Nokia goes to it for chips.
Chip designer Qualcomm holds a large number of important patents for cellphone technology, but when its cross-licensing deal with Nokia expired in April 2007, the Finnish giant demanded far lower fees. Qualcomm dominates intellectual property for CDMA, the underlying technology for all flavors of 3G, but last April Nokia argued that it had already paid $1bn for use of the older CDMA patents, and so regarded itself as ‘paid up’, a claim Qualcomm subsequently accepted.
On the eve of the settlement Nokia won a key court case in Germany over GSM patents, to add to wins in a UK court and favourable decisions at the International Trade Commission.
The remaining fight was over newer 3G patents and rights to emerging technologies like OFDM ‘ the basis of 4G networks and handsets ‘ and GPS and mobile TV technologies like DVB-H and MediaFLO. The two companies engaged in a long series of lawsuits and Nokia also filed allegations of anti-competitive business practises with the European Union. Nokia goals were to reduce payments to Qualcomm as well as set lower expectations for the royalty burden on 3G and 4G handsets across the whole industry.
The Finnish company argued that it should pay just $20 million a quarter to Qualcomm because the US chipmaker’s patents were less essential to 3G and 4G than they were at the 2G phase, and because Nokia had a far stronger patent collection of its own to trade. On the second point, Nokia and other wireless majors like Ericsson have been calling for the total cost of patents royalties to be no more than 5% of the cost of a handset, arguing that otherwise it will be impossible to bring cellphone prices down to the level needed for emerging markets.
The terms of the settlement announced this week just as a key trial was due to start in Delaware, US, are secret, but it is inconceivable that Nokia, whose position in the handset market is growing by the day, would have dropped its actions without significant concessions. These could have ramifications for Qualcomm’s negotiations with other handset makers and help drive down costs across the sector.