Qualcomm turned down a similar deal three weeks ago because it could cost $2 billion. Instead, Qualcomm was reportedly hoping for a $100 million fee plus a future cross-license. (The Bloomberg article claims Qualcomm offered a royalty-free cross-license, which would be dramatically out of character for either Qualcomm or the industry).
For six patents, Broadcom could be making more per CDMA phone than Qualcomm makes (~ 5% of the price) for more than 1,500 patents. Of course, Verizon gives Broadcom another $200 million with which to sue Qualcomm (or perhaps even file more patents that block Qualcomm). (We do not know whether Verizon still has to pay the royalties if Broadcom’s patent claims are somehow dismissed or settled.)
If the Americans bought 143 million new phones last year, then Verizon’s 26% share would sell the 33 million phones in about a year before royalties were paid up. (It might take a little longer because royalties are capped at $50 million/quarter).
I’m guessing that Verizon — in a neck-and-neck market share war with the iPhone-equipped AT&T (27% share) — feels this would be a bad time to let its number #1 rival gain an advantage in new handsets and thus customer additions. This shows how much Verizon is willing to pay for certainty. It also means that Verizon no longer has a reason to support Qualcomm’s appeal of the ITC decision.
This is a very dangerous time for Qualcomm: if it loses the ability to charge royalties for firms that hold any 3G or GSM IPR, then it would probably lose the majority of its patent royalties (and as much as half of its net income). Nokia, Broadcom and others are hoping this will happen, and right now Qualcomm’s enemies are more powerful than its allies. For a decade, Qualcomm’s IP business model has counted on having the facts and IP law on its side, but the last year or two has reversed that trend.
Technorati Tags: Broadcom, patent infringement, Qualcomm, Verizon
2 comments:
Your conclusion makes little sense. The dispute and settlement with Verizon has to do with a simple patent affecting battery life. It has nothing to do with QCOM's patent rights for CDMA and absolutely nothing to do with QCOM's patent rights for WCDMA (i.e., GSM 3G). Broadcom cannot enter into the WCDMA arena without a QCOM patent and this settlement gets them no closer. If anything, they lost any leverage to negotiate a royalty license with QCOM for WCDMA. The only downside I see for QCOM is Verizon will now force QCOM to pay for some of the $6 if QCOM wants to keep the relationship (which QCOM was willing to do directly with BRCM anyway). Verizon's lobbying arm will no longer pressure Bush for a veto. Another point to keep in mind is that Verizon only negotiated a 5 quarter license even the patent in question has 3 more years before expiring so Verizon most likely believes a workaround will be in place by then.
Of course I agree that this is just a patent about power consumption and it has limited life. And I agree Verizon will want Qualcomm to make good on some of the royalty, and that it no longer cares who wins the fight.
But Qualcomm (reportedly) rejected paying $6 for every US cellphone. Also, as I read the Verizon detail, their license will be paid up after about 4-5 quarters.
However, there has been some talk that Qualcomm is offering a royalty-free cross-license. This seems contrary to industry practice. Normally if Nokia has 200 patents and Sanyo has 1, then Nokia pays royalties for 1 patent times 300 million phones while Sanyo pays royalty for 200 patents times maybe 5 million phones.
So is Qualcomm offering a royalty-free license? The precedent it would set could destroy their IP business model. I find it hard to believe, but then no one really knows what’s going on behind closed doors.
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