As with Qualcomm’s settlement last summer with Nokia, the agreement settles all existing disputes and lets Qualcomm and Broadcom get on with their business:
The agreement will result in the dismissal with prejudice of all litigation between the companies, including all patent infringement claims in the International Trade Commission and U.S. District Court in Santa Ana, as well as the withdrawal by Broadcom of its complaints to the European Commission and the Korea Fair Trade Commission. Under the agreement, the companies have granted certain rights to each other under their respective patent portfolios.The press has emphasized the financial terms — Qualcomm paying $891 million over the next 4 years, including $200 million this quarter — which is clearly a lopsided settlement to allocate patent usage rights between the two companies.
TradingMarkets summarizes the numerous complex cases. However, the core issue was simple: Broadcom prefers royalty-free cross-licenses and has sought to coerce Qualcomm into providing same, using its various developed (and acquired) patents to win infringement judgements against Qualcomm.
Qualcomm sought at all cost (as it always does) to avoid setting a precedent that would undercut its core business model and revenue streams from the entire 3G (soon to be 4G) industry. It’s clear that Qualcomm paid dearly to settle the infringement claims without setting that dangerous precedent.
What seems to be under-reported is how the summary of the terms defines a clear partition of the industry:
- Qualcomm’s customers get use of Broadcom’s patents for Qualcomm’s ICs in cellular products, but not for non-cellular products.
- Broadcom’s customers get use of Qualcomm’s patents for Broadcom’s ICs in non-cellular products, but not for cellular products.
At Qualcomm’s instigation, the first paragraph asserts
The terms of this agreement will not result in any change to Qualcomm's 3G (e.g., CDMA2000®, WCDMA and TD-SCDMA) and 4G (e.g., LTE and WiMAX) licensing revenue model.The wording implies that Qualcomm changed its non-3G, non-4G revenue models. In other words, Broadcom got what it wanted — a royalty-free cross license — but not in cellular. This precedent seems to be the narrowest that Qualcomm could offer to satisfy Broadcom without hurting its core business.
On the analyst call, I would want to ask Qualcomm if the rights it granted Broadcom for non-cellular products will force it to renegotiate or otherwise change the terms of any other existing royalty agreements. My guess is that this is a small part of Qualcomm’s business, but as an analyst I wouldn’t want to guess.
However, the questions for Broadcom are more fundamental. It’s not clear what this means for Broadcom’s future, since it’s hard to see how they could ship a 3G or 4G product without a cellular patent license from Qualcomm. Had they already decided to give up on cellular and stay more in PCs and consumer electronics? Are they foreclosing cellular growth to avoid fighting Qualcomm? Or are they going to come back for a royalty-bearing agreement later on?