Tuesday, November 24, 2009

Paul Jacobs negotiates way out of EU complaint

The European Commission today announced that it’s dropping the four-year-old antitrust case against Qualcomm‘s patent licensing policies. Don Rosenberg — general counsel of Qualcomm since October 2007 — was understandably pleased:
Qualcomm is extremely pleased to learn of the European Commission's announcement. After an extensive four-year investigation into Qualcomm's practices, and despite the coordinated nature of the complaints made against it, the Commission has terminated its investigation with no finding of a violation
The Case

The complaint was filed in October 2005 by two European telecom makers (Nokia, Ericsson), two Japanese makers (NEC, Panasonic) and two US competitors for Qualcomm’s chipsets (Broadcom, TI), sending Qualcomm’s shares down 4.6%.

Since that time, Qualcomm settled with two of the original complainants. Its biggest customer — Nokia — renewed its license to Qualcomm’s patents in July 2005 on terms believed to reduce its long-term royalty payments. After losing repeated lawsuits with Broadcom, last April Qualcomn settled all IP complaints between the two companies. Both parties dropped out of litigation against Qualcomm.

In anticipation of the commission’s decision, Ericsson on Tuesday dropped its complaint to the EC. (Note: this is Ericsson the leading supplier of cellular infrastructure, not Sony Ericsson, the handset also-ran). Ericsson claimed victory in its attacks on Qualcomm’s business model due to a $208m fine in Korea and an ongoing investigation in Japan.

Since 2005, TI and Qualcomm have avoided litigation, but in 2007 Qualcomm passed TI to be the top mobile handset chipmaker. Qualcomm is on track to be the 6th largest semiconductor vendor (albeit a fabless one) this year.

The official EC statement said
The Commission committed time and resources to this investigation in order to assess a complex body of evidence, but has not as yet reached formal conclusions.

All complainants have now withdrawn or indicated their intention to withdraw their complaints, and the Commission has therefore to decide where best to focus its resources and priorities. In view of this, the Commission does not consider it appropriate to invest further resources in this case.
The Commissioner

One possible factor in the decision may have been the expected end of the term of the EC’s Competition Commissioner, Neelie Kroes, who saw her role as remaking the global world order for the benefit of EU firms.

Kroes has openly campaigned for more aggressive oversight against US market leaders (Microsoft, Intel, Qualcomm). She unilaterally imposed a $1.4b fine on Intel for its actions against its US competitor. She hoped to use her success over Microsoft to bring down Qualcomm as well.

Two months ago rumors surfaced that Kroes wanted to convene a special panel to examine Qualcomm’s activities. At the time, some speculated that others within the EC opposed Kroes because there wasn’t much of a case. Tuesday, Kroes won reappointment to the European Commission, but is widely expected to be rotated out of the powerful Competition position.


I believe that clearing up the uncertainty and risk associated with these various legal threats constitutes Paul Jacobs’ greatest accomplishment thus far as Qualcomm CEO. It’s tough to follow an industry legend — the only CEO the company had ever known — who also happens to be your father. (Note: for my book, I’ve interviewed Irwin Jacobs twice but have only heard Paul Jacobs give speeches.)

However, Paul Jacobs inherited these problems, the inevitable collision between Qualcomm’s take-no-prisoners royalty model and the decision of its GSM rivals to use CDMA technology in their 3G standard.

When Qualcomm (charitably) had mixed results in the courtroom, its new CEO took a more conciliatory approach with its most determined opponents (Broadcom and Nokia) to create a win-win outcome. (I’m betting Qualcomm also worked out less public accommodations with its other adversaries). The resolution of these cases brought the end to the EU case, the most serious threat to its business model.

When he ascended to the CEO position in July 2005, Jacobs was best known as a technology enthusiast who emphasized new revenue streams such as MediaFLO. The jury is still out on these businesses, but given his pragmatic approach towards litigation, one can hope he will take a dispassionate look at them and decide to pull the plug if they’re not panning out.

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