Friday, April 13, 2007

Qualcomm says “no” to 20 cents on the dollar

Kathryn Balint of the U-T had an interesting day two (three? twenty?) story this morning (C3 in the dead tree edition) on the Nokia-Qualcomm negotiations over W-CDMA patents.

This time last week, reporters breathlessly reported Nokia’s PR that it had “paid” Qualcomm $20 million for rights to use Qualcomm’s patents. When I was a business owner, being “paid” meant that I had money in hand, in my bank account or a check I could cash.

What Balint’s story today makes clear (even if she doesn’t say so directly) is that Nokia made a conditional offer of payment. Not surprisingly, the proposed payment came with a set of legal conditions:
Qualcomm also said it rejected “the accompanying multiple pages of terms upon which Nokia conditioned its payment.” The exact terms proposed by Nokia remain confidential.
Nokia has known about this deadline for more than a year, and is clearly mounting a PR campaign to both lower people’s expectations as to the value of Qualcomm’s portfolio, and insulate itself from the public perception that it’s a wanton patent infringer (like, say, Vonage). Nokia corporate has been issuing an ongoing stream of press releases.

This morning’s release says Qualcomm is a big user of Nokia patents and thus (presumably) should offer Nokia a reduce royalty or royalty-free cross-license. Of course, if Qualcomm got in the habit of doing that, its whole IP business model would be in jeopardy.

Balint had one other tidbit — the $20 million Nokia offered is what is “fair and reasonable” for the entire quarter. If (as reported) Nokia is paying $450-500 million annually in royalties, then this is less than 20¢ on the dollar from the previously agreed-upon terms. No wonder Qualcomm dismissed the offer as unrealistic.

Somewhere (can’t find the link) I saw speculation that Nokia hoped for a 50% royalty reduction (which if granted everywhere would reduce Qualcomm’s annual net income by one-third). If they offered less than 20%, then clearly that was not “fair and reasonable” but a negotiating ploy.

Of course, outsiders have no idea what’s going on behind closed doors, which makes it doubly important to ignore the PR war.

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