(Also posted on the moderated thread)…
I am having trouble understanding how Qualcomm and Spinco will operate and what changes are implied in Q's positions on royalties. There have been 2 important positions. The first deals with the royalty rate versus the number of patents that were used. In the past, Q took the position that it would license its IPR in CDMA to companies at a fixed royalty rate regardless of how many patents they actually use. So a licensee would pay, say, 4% whether it used one or all of Q's CDMA patents.
The second deals with non-discriminatory licensing of IPR. One of the key hang-ups in developing the 3G standards was the requirement by the standards making body (I forget its name) that all holders of patents necessary for WCDMA must agree to license their respective IPR's on a nondiscriminatory basis. I have always understood this to mean that all licensees would pay the same royalty rate. Originally, Q took the position that it would only license its IPR for 3G applications that were backward compatible with CDMA-One. Under its settlement with Erricsson, the parties agreed to leave the question of backward compatibility to the service providers, i.e. the CDMA-One service providers could choose CDMA-2000 to ensure backward compatibility and others could choose WCDMA that might be incompatible with CDMA-One. Q has stated on several occasions that it will charge the same royalty rate for CDMA-One and WCDMA. The settlement seemed to resolve the question of non-discrimination in licensing.
Now Q has announced that its is spinning off Spinco, and Q will assign some of its essential patents to the new company. From postings on this thread, I understand that these assignments include the provision that Q can continue to use the assigned patents without restriction (including, I presume, the ability to sub-license the patents to third parties. Otherwise, this would create other problems, discussed below.). The advantage of this re-structuring is that Spinco can go to other holders of essential patents for W-CDMA and say, in effect, that if you don't give me a royalty free license for your patents, we will withhold our patents from you so that you cannot develop the WCDMA technology either. The expectation is that the various parties will form a "patent pool" where nobody in the group pays or collects patents within the pool (or pays/collects according to some agreed offsets), and Spinco will be free to develop WCDMA applications without paying royalties. At the same time, Q can collect its royalty payments for the non-assigned patents since it isn't developing applications.
Now, here are my questions/observations. First, if Q has agreed to license on a non-discriminatory basis and if it has complete freedom to sub-license assigned patents and if it maintains the one royalty rate position regardless of number of patents used, why can't a company just deal with Q and not with Spinco? If a company wants to make CDMA phones, all it needs to do is sign a license agreement with Q for its owned and assigned patents. If later it decides to develop a dual mode phone, would the license agreement prohibit it from doing so? If Q and Spinco are truly independent and at arms length, then Q would be obliged to cut the best deal it can for itself, without consideration of effects on Spinco. This suggests that Q has changed one or both of its positions.
If Q does not charge royalties to Spinco, then it is discriminating against other companies in favor of Spinco. If Q charges royalties from Spinco at the same rate as to other companies, doesn't it still discriminate? Other companies outside the pool will now have to pay 2 sets of royalties - one to Q and the other to the pool for other IPR needed to make WCDMA applications. The royalty rate will depend on the number of patents used by the licensee.
If Q does not have the ability to sub-license assigned patents, then it forces companies to deal with the pool, even to obtain the IPR to make CDMA-2000 phones. This would not work.
I have no problem with Q changing its positions on the "one royalty rate for any and all IPR" and the "non-discriminatory licensing commitment", but I would like to understand their implications. What enforcement power does the standards making body have? What does this do to the relations that Q has established with past license holders? These are important questions, not just from the standpoint of fairness, but also from the perspective of its impact on relations with trade allies.
I would be interested in reactions, comments, and questions. |
