Cell phone industry giants Nokia and Qualcomm prepare to square off in a Delaware court today in a case that will help determine whether Nokia pays Qualcomm billions of dollars to use the San Diego company's technology.
In the complex case, the companies agree on little except one key point: the Finnish company makes phones that include the San Diego company's technology.
Just about everything else is disputed:
Whether Nokia has a licensing agreement with Qualcomm.
Whether Nokia owes Qualcomm money, and if so, how much.
Whether Nokia has been making payments.
Whether Qualcomm has the right to arbitration.
Whether the Delaware court will resolve the dispute.
“This is the most significant single legal event for Qualcomm, bigger than Broadcom or any other,” said Michael Cohen, San Diego-based research director for Pacific American Securities. “The amount of money involved is so large.”
The dispute between the two companies dates back to a 1992 licensing agreement that allowed Nokia to use Qualcomm's patented technology in its phones. That license expired on April 9, 2007. Nokia continued making phones that include Qualcomm technology, saying it has a paid-in-full license to some Qualcomm technology.
Qualcomm holds patents on technology for CDMA and WCDMA. CDMA, or code division multiple access, allows multiple wireless callers to share a single frequency. WCDMA, the wideband version, allows transmission of multiple data connections and voice over one frequency.
To make so-called 3G, or third-generation, phones capable of high-speed data connections, Nokia needs to use Qualcomm's WCDMA technology.
Under the old agreement, Nokia paid Qualcomm royalties of about 5 percent of the sale price of a phone, which is the standard rate Qualcomm charges companies that license its technologies.
Nokia is resisting paying that rate in the future, saying that Qualcomm's technologies make up a smaller portion of a modern phone, which now includes technologies such as Bluetooth wireless networking, GPS receivers, cameras and music players.
Qualcomm argues that WCDMA is the heart of a 3G phones and is as essential as CDMA was in 2G phones.
In the Delaware court, Qualcomm is arguing that Nokia has extended the old contract by continuing to include Qualcomm technology in its phones. That contract called for binding arbitration to establish a price. Qualcomm is asking the court to send the case to arbitration.
Nokia argues that the contract can be extended only through a written agreement.
Qualcomm says the court battles boil down to a dispute over whether Nokia will continue to pay 5 percent royalties.
“They're trying to reduce what we charge them,” Qualcomm Vice President Bill Davidson said. “This is just price negotiations.”
Davidson said that if Nokia successfully argues that it has not extended the license, it opens the door for a Qualcomm lawsuit charging patent infringement.
One analyst said Nokia faces an uphill battle arguing that Qualcomm's rates are unfair because other cell phone makers have agreed to pay 5 percent of the cost of their cell phones to use Qualcomm technology.
“The difficulty Nokia has got is that 90 other members of the industry agreed to this,” said Francis Morrison, a lawyer for Axinn Veltrop and Harkrider LLP.
In a separate issue being heard by the Delaware court, Nokia is asking the court to clarify Qualcomm's contractual obligations stemming from industry standard-setting bodies. Qualcomm's WCDMA technology was made part of the industry standard for 3G phones in Europe by the European Telecommunications Standards Institute, which means Qualcomm is obligated to license its technology on “fair and reasonable” terms.
“We believe this means you should not be entitled to seek court injunctions for essential patents,” said Nokia spokeswoman Laurie Armstrong.
Reuters contributed to this report.
Jonathan Sidener: (619) 293-1239; jonathan.sidener@uniontrib.com
