TI and Qualcomm in rare agreement

As part of its push to take over the mobile phone world, Intel has its sights set firmly on Qualcomm and TI. Despite their fierce rivalry for device market share — and a bitter fight over CDMA and W-CDMA patents — this is one place where (to a limited degree) the enemy of my enemy is my friend.

Bloomberg quotes Intel CEO Paul Otellini as recognizing the growth potential of mobile devices. Intel is trying to create a brand new segment distinct from smartphones — which it calls mobile Internet devices — where it hopes its Taiwanese OEM partners can enter without major competition from Nokia et al.

As Bloomberg reports:

“I'm skeptical -- that business is tough,” said analyst Bill Gorman at Pittsburgh-based PNC Institutional Investments, which owns 10.8 million Intel shares, according to data compiled by Bloomberg. “There is very difficult entrenched competition. Qualcomm continues to push state of the art; TI is going to remain a major player.”

Intel, the Santa Clara, California-based company whose products are the brains in more than 75 percent of the world's PCs, says only devices with chips based on those complex processors can run the Internet properly because the software at the backbone of the Web was written for computers.

Otellini predicts PC makers will buy Intel chips for new handheld computers, a market Texas Instruments and Qualcomm say their handset customers are exploring. Once he's won over mini- computer buyers with the new product, called Atom, Otellini plans to court phone makers as Intel creates less power-hungry models.

Somehow, I don’t quite see it. Even though Nokia and Intel are de facto cooperating on a Linux variant for these mobile internet devices, this is a frontal assault on Nokia’s 40+% market share for mobile phones based on ARM microprocessors.

Also, the claim that web browsers require an x86 processor to surf the web is silly. Communications bandwidth is going to be the limiting factor — unless you’re teaming up with Adobe to populate the mobile Internet with millions of compute-inefficient, Flash-infested web pages.

Next, there is the assumption that TI and Qualcomm will sit still. As the article notes, both are making more powerful cellphone processors — respectively with their OMAP and Snapdragon processor families. I suspect Otellini’s braggadocio will cause them to redouble their efforts.

If you're think you've heard this song before, you have. As the article notes, to enter the mobile phone market last time Intel spent $5 billion from 2000-2006 and only got about 10% of its money back. Thus far, Intel’s efforts to diversify away from the PC have been unsuccessful.

Given these obstacles — including the fierce opposition — I’d bet against Intel reaching $5 billion in mobile phone revenues by 2015. But I wouldn’t bet the house on it, and would only offer about 3:2 odds against Intel.

British standards for essential 3G patents

As decided last December, the ruling by the High Court of Justice for England and Wales on Nokia v Interdigital Technology Corp (2007) will have a major impact on how patents are licensed (and enforced) in mobile phone standards. Although the ruling is technically only binding in the UK, I believe the findings will impact the various patent lawsuits involving InterDigital (IDCC), Qualcomm (QCOM), Nokia (NOK), Broadcom (BCOM) and others holding (or seeking to avoid paying royalties on) mobile phone patents.

InterDigital declared to ETSI that various patents were essential for implementing the W-CDMA standard, but (as with all ETSI declarations) this self-determined essentiality was not independently verified. My interest here is not the SD telecom book, but a series of papers I’m doing with Rudi Bekkers on W-CDMA (aka UMTS) patents.

In this case, Nokia sued to have 29 InterDigital patents declared not-essential to W-CDMA. Nokia had previously won in English courts in an earlier case involving InterDigital’s GSM patents. This is all part of a larger strategy by Nokia to get out of paying any royalties to InterDigital.

Of the 29 “essential” patents, Nokia dropped its challenge to one patent, InterDigital conceded that 21 were not essential, did not defend three more, leaving four patents contested at trial. The judge, Sir Nicholas Pumfrey, ultimately ruled that only one patent was partially essential.

When the ruling by Sir Nicholas Pumfrey was released Dec. 21, 2007, InterDigital spun the ruling as a victory, but clearly InterDigital ended up telling the world (including current and potential licensees) that 27 of 28 patents patents declared essential to W-CDMA actually aren’t.

The findings are all covered in the ruling by Lord Justice Pumfrey, but I learned what it really meant from a forthcoming law review article:

Myles Jelf and Michael Stevenson, “Nokia v IDC: an essentially English judgment,” Journal of Intellectual Property Law & Practice, 2008, Vol. 3, No. 7, pp. 457-460. doi: 10.1093/jiplp/jpn084

The authors are not a party to the case, but attorneys at Bristows in London; they do a commendable job of explaining the findings in a style accessible to an IP-knowledgeable engineer or businessperson. A preprint copy of their article was posted May 21 to the journal website.

The article notes the contribution of the decision in deciding essentiality, providing a process for its evaluation, and even procedural precedents about to run such litigation. To quote the authors:

The overall approach adopted by the Courts appears to be as follows:

• Start out with the patent in one hand and the relevant standards in the other.
• Consider the correct construction of the patent, entirely independently of the standards, through the eyes of the skilled person.
• ...
• Consider to what extent the claim construction put forward corresponds with what is specified in the standards ...
• ...[D]ecide whether what is properly required by the standards falls within the language of the claim, as understood by the skilled person.

But (the authors argue) the contribution of the ruling goes beyond the process of determining essentiality to setting a standard for essentiality and providing procedural precedents about to run such litigation. I defer to the article for a more complete discussion of the ruling’s interpretation and implications.

Before he was promoted to become Lord Justice of Appeal last November, Pumfrey gained a reputation for handling complex patent cases. He drew from degrees in both physics and law that he earned before becoming a barrister in 1975, as well as three years as junior counsel in the UK patent office. But he was known more broadly for his expertise in IP law, ruling (for example) last year on a trademark case involving a transvestite beauty pageant.

Tragically, Pumfrey died three days after the ruling was published of a massive stroke he suffered on Christmas Eve. The judge, aged 56, apparently had a weight problem. Pumfrey was well-regarded for his specialized expertise and will be missed by his peers.

Photo credit: Sir Nicholas Pumfrey, from the Times of London January 3, 2008 obituary.

Viterbi's honorable mention

Andrew Viterbi, co-founder of Linkabit and Qualcomm, was one of four finalists for the biennual Millennium Technology Prize, which is awarded

to inspire and recognize innovations that can provide answers to the challenges of our time, promoting both the quality of human life and sustainable development.

The two previous winners of the prize invented the blue LED (which makes DVDs possible) and the world wide web (which makes reading this blog possible).

Brad Smith in Wireless Week explained how Viterbi’s 1967 publication of the Viterbi algorithm (allowing maximal signal/noise ratio on convolutionally encoded signals) changed the telecommunications world.

This morning in Helsinki, the Technology Academy of Finland. awarded the prize of €800,000 to another finalist, Robert Langer of MIT. Here’s the citation

Professor Robert Langer's innovations have had a significant impact on fighting cancer, heart disease, and numerous other diseases. His work has also brought about significant advances in tissue engineering, including synthetic replacement for biological tissues such as artificial skin. Over 100 million people a year are already using advanced drug delivery systems and this number is rising rapidly. In the future, tissue engineering may revolutionize medical treatment that could affect millions of other individuals. "Tissue engineering holds the promise of creating virtually any new tissue or organ," said Professor Langer.

Viterbi and the other finalists were awarded €115,000, which Viterbi previously said he’d donate to charity. Obviously this is still a high honor, crossing over from an industry-specific award to one recognized more broadly by society.

Vaudeville performers had a maxim: Never follow an animal act or a child act. So I guess I’d say that you don’t want to be a finalist against someone who’s curing cancer.

Swimming in the empty WiMax pool

The news is all abuzz with the announcement of a planned patent pool for WiMax to be called the Open Patent Alliance. (The announcement is coming at the WiMax Forum in Amsterdam). I still see nothing to recant my earlier observation that WiMax is likely to have little or no impact on mobile wireless in the US or most of the rest of the world.

Part of the problem is that there are few new faces. The alliance is anchored by Clearwire and Sprint (who are building a US WiMax network) and Intel, the main funder of WiMax for the past five years. It also includes Alcatel-Lucent, Cisco and Samsung.

Noticeably absent are the three largest 3G IPR holders: Nokia, Ericsson and Qualcomm, as well as Motorola. The ComputerWorld coverage was breathlessly foolish:

Motorola and Qualcomm would still be allowed to join, even though they are not expected to attend on Monday, said one person familiar with the discussions. He said the principal function of the group will be to open up WiMax patents held by various vendors to make licensing of future products for networks a cleaner and faster process. Most of the major patent holders have already signed on, he noted.

But the Wall Street Journal article reported a flat rejection by Qualcomm, which has never joined any patent pool: "Qualcomm has consistently preferred to negotiate license agreements bilaterally.” That’s also been Motorola’s policy in the past, too.

The WSJ tries to be optimistic about the development:

A group called MPEG LA, for example, offers standard royalty rates for licensing patents associated with video compression. Patent pools are "tremendously important," said David Balto, a Washington, D.C., lawyer who handles patent and antitrust issues.

MPEG LA is one of the rare examples where all the major parties got together beforehand and formed the pool. Due to conflicting interests of licensing IP and selling hardware, this rarely happens in telecom. For 3G, the patent pool includes the nearly irrelevant players, which (except for Intel) is true of the WiMax proposal.

Another optimistic WSJ expert quote:

Larry Goldstein, a patent lawyer who wrote a book on patent pools, said the WiMax group could reduce the number of licensing deals to be negotiated even if some patent holders don't join. "It can cut down on the onerous negotiations and cut down on the overall royalty rate," he said.

Notice “can” and not “will.”

The claim that the patent pool covers “most” of the patent holders might reduce transaction costs, but if it doesn’t have “most” of the patents, it will have negligible effect on the overall royalty rate, unless the small patent holders pass on the transaction cost savings to licensees.

What % of the WiMax patents are owned by Intel (the main patent holder in the alliance) vs. the four major holdouts? And since the latter are moving aggressively to migrate 3G cellular carriers to WiMax’s main competitor, LTE, what incentive do they have to cooperate with Intel to reduce licensing costs?

The WSJ article quoted an analyst predicting similar patent rates for both LTE and WiMax. That seems pretty plausible, since there is a heavy overlap in the patent holders between both technologies. Someone like Qualcomm will say “we’re charging 5% for use of our technology, whether for LTE or WiMax.”

There is only one scenario that I could see the pool significantly cutting WiMax royalty rates: if Intel successfully uses it as a club to force cross-licensing by the holdouts on more favorable terms. Motorola might be loathe to give up on Sprint — one of its larger customers — but neither Nokia nor Ericsson has sold many phones through the struggling carrier. Qualcomm also has yet to announce WiMax support in its planned LTE chipsets.

Last week, an Intel executive floated the idea that WiMax and LTE should be merged into a unified OFDM-based standard. I guess that’s what you say if you can hear the stamped bearing down on you.

(BTW, the WiMax proponents are now calling it WiMAX. I guess they didn’t call it WIMAX because they know that reporters would ignore the request, as they do for QUALCOMM.)

Schadenfreude

Last month, the SEC sued Broadcom’s two founders, Henry Samueli and Henry Nicholas, alleging phony accounting in connection with incentive stock options. Today, the feds unsealed an indictment of Nicholas — charging stock price manipulation, using and distributing drugs and hiring prostitutes for his employees and customers. (Of course, Nicholas denies the charges).

The stock option accusations are not unusual for tech executives, and there are even a few that seriously argue that this is mostly an accounting issue not worthy of felony prosecution. But the sex-and-drugs accusations (stemming from a disgruntled ex-employee’s complaint) are just plain weird, more suitable for a pro athlete than a tech executive. This is complete with the report that (since April) Nicholas has been at a celebrity rehab center in Malibu. No such accusations have been leveled at Dr. Samueli, Nicholas’ former UCI professor who used his Broadcom wealth to endow two engineering schools, UCI and UCLA.

Clearly the course cases will be a major distraction for the company’s founders if not its management. Given all the problems Broadcom has created for Qualcomm, such a distraction would be welcomed by at least some Qualcomm employees and shareholders.

The German word for this is Shadenfreude, although I think the original Qualcomm executive team would have too much class to even hint at it in private. As for the current CEO, I’ve had no direct contact from which to judge; perhaps the best indicator would be how many elbows he throws in his notoriously competitive basketball games.

China will/won't allow cdma2000

Back in November 2000, I needed a case to teach political risk. So I wrote one about Qualcomm's on-again, off-again relationship with the Chinese government and state-owned carrier China Unicom — the one that eventually allowed Unicom to offer cdmaOne 2G mobile phone service in China. (My teaching case “Qualcomm in China” was used to flesh out the China portion of Dave Mock’s Qualcomm book).

Last month, the Chinese government unveiled a master reorg of telecommunications carriers is realigning six companies to three, each of which will have a wireline and mobile operation. China Unicom will be broken up, and its CDMA operations sold to China Telecom (the dominant wireline carrier) while its GSM network will be sold to China Netcom. One estimate places the value of the CDMA network at $13-15 billion.

But after that, nobody can agree on what’s happen — which exactly makes the point of the original case that a lack of policy transparency creates high risk and uncertainty for Western firms operating in China.

Among the disputed predictions that are the source of so much speculation:

• Will it create real competition for China Mobile, which with nearly 400 million subscribers is the world’s largest cell phone operator? An expert interviewed by the FT said “There will be no way to create a real three-way fight – China Mobile will still be the big one standing alone” but the market pummeled China Mobile shares on the assumption that it will have real competition.
• Supposedly having three carriers means three 3G licenses will be issued, solving a long-standing problem in Chinese telecom policies. Some say (as has been long predicted) it will happen in time to showcase Chinese wireless technology for the 2008 Olympics, but others say it won’t happen until 2009.
• Many say it clears the way for every carrier to deploy TD-SCDMA, but TheStreet speculates that all three types of 3G will be deployed: TD-SCDMA with China Mobile, W-CDMA with China Netcom and cdma2000 with China Telecom. With this plan, CT would have a huge time to market advantage because the cdma2000 upgrade is faster and cheaper, while China Mobile would deploy the least proven technology (one it has been trailing for several years).
• Reportedly one expert claims that China will skip 3G to 4G (see the comments on this post). It would certainly make sense technologically — allowing China to skip a generation of infrastructure development and giving its manufacturers a huge leg up on 4G equipment deployment. The problem is that the comment is attributed to Willie Lu, a prolific wireless researcher who is well connected and well trained (although a lousy webmaster), but a 4G promoter based in America who speaks for himself and not the Chinese government.

So will there be a TD-SCDMA? Will Qualcomm make any money from it? As with a year ago, everything is still up in the air.

Qualcomm is notoriously secretive in disclosing its royalty terms, which makes it difficult for researchers like me but also leaves it vulnerable to accusations of violating the non-discriminatory part of RAND patent licensing terms. One report I thought curious was an account Friday that claimed that China Telecom signed a deal with Qualcomm to pay CDMA royalties at 4%.

Reviewing my notes from the Qualcomm in China case, it’s clear that report is wrong. The list price for QCOM’s patents is known to be in the 4-5% range. I reported back in 2001 that on behalf of Unicom and its suppliers, the Ministry of Information Industry (MII) negotiated Irwin Jacobs down to 2.65% for handsets and 1% for infrastructure. So there’s no way the MII-led reorg will cause China Telecom to pay 4% royalties for Unicom’s existing 2G network.