Nokia pays Qualcomm $20 million for 3G patents
Level of payment suggests no swift resolution to ongoing legal Last Update: 6:01 AM ET Apr 5, 2007
LONDON (MarketWatch) -- Nokia Corp, the world's largest mobile-phone maker, on Thursday said it has paid chipmaker Qualcomm, Inc. $20 million for the use of third-generation patent licenses in the second quarter.
News of the payment comes as the companies are in last-minute negotiations over the renewal of a major cross-license agreement due to expire on Monday.
A deal, however, is unlikely to be struck. The two firms have in recent months become embroiled in an increasingly bitter legal battle other over patents and intellectual property rights and disagree over how much Qualcomm
Nokia said Thursday's payment was unrelated to the ongoing dispute. What the payment does, however, is quantify for the first time what Nokia believes is a fair price for the use of Qualcomm's patents.
"As we continue to negotiate the new cross-license agreement, Nokia views this payment as fair and reasonable compensation for the use of relevant Qualcomm essential patents in Nokia UMTS handsets during the second quarter of 2007," Nokia's Chief Financial Officer Rick Simonson said in a statement.
Analysts said the payment has implications for the contract-renewal negotiations now underway, as it clearly suggests Nokia intends to pay a far lower royalty rate in the future than the 3% it's been paying under the existing agreement.
Citigroup said news of the $20 million payment suggests Nokia believes its royalty obligation to cover 3G licenses for one quarter amounts to a rate of about 0.6%.
The broker noted that this is "much lower" than the 4% to 5% most investors believe Qualcomm charges handset vendors, and also far below the 3% of the current deal.
As a result, Citigroup said it expects talks on the license renewal to drag on. The broker said it believes Nokia's "very low bid" is driven by its small share of the U.S. CDMA market. Nokia has been losing share in that market to rivals Motorola,
Nokia and Qualcomm have been filing a raft of lawsuits against each other over the last year. Nokia has been trying to break, or at least loosen, Qualcomm's hold on patents for CMDA, which is the digital-wireless technology most widespread in North America. Qualcomm, in contrast, believes that Nokia is trying to destroy its business model, which relies in a large part on royalties generated from its intellectual property.
Earlier this week, Qualcomm filed two new patent infringement lawsuits against Nokia, suggesting the dispute is unlikely to be settled ahead of the April 9 deadline. Nokia said if an agreement is not reached on April 9, Qualcomm's entire chipset business becomes exposed to its own GSM, WCDMA and CDMA patent portfolios. "Nokia will use all rights from those portfolios when defending itself against any new Qualcomm litigation," Simonson said.
But Qualcomm has so far been unfazed. In an interview with MarketWatch last week, Chief Executive Paul Jacobs showed no sign of yielding to the pressure.
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