From Yahoo! Rocket. Unsourced. Sorry.
By: jk1783 $$$
Reply To: None Monday, 28 Aug 2000 at 5:48 PM EDT
Post # of 60581
QCOM and 3G deliberations/Patents
Future of 3G Wireless Under Threat?
By Ray Hegarty, Aug 28 2000
Qualcomm and industry organization 3G3P on a collision course over 3G patent claims.
Nineteen major mobile telecommunications operators and equipment manufacturers - and two industry organizations, the GSM Association
and the European Public Telecommunications Network Operators Association - are setting up a new company at the end of September with
the aim of reducing the royalties they pay each other for the use of patented technology in third-generation mobile systems.
The as-yet unnamed company, nicknamed NewCo, is to evaluate, certify and license patents for 3G mobile communications, in an attempt to
reduce the acquisition costs of 3G technologies.
Bids for 3G wireless network licenses in the UK and Germany have surpassed estimates. At the same time, the average revenue per user in
Europe is falling, making the cost of implementing a 3G network more expensive than previously estimated.
However, the key patent holder for 3G technologies, Qualcomm, is not a member of the group behind the NewCo initiative, despite being
involved in the working group that originally defined the 3G Patent Platform Partnership (3G3P). Lou Lupin, Qualcomm's senior vice president
for proprietary rights, says that the company became unhappy with the way the group was organized and how the patents would be evaluated.
"Most of the claims are untested and we, Qualcomm, think just not legitimate. There is no weight of value on each intellectual property," he
said.
The US company claims the majority of the essential patents for two crucial standards, code division multiple access (CDMA2000) and
wideband code division multiple access (W-CDMA).
3G3P sponsors include Alcatel, Cegetel, Electronics and Telecommunications Research Institute (ETRI), France Telecom, Fujitsu, Royal
KPN, LG Information and Communications, Matsushita, Mitsubishi Electric, NEC, NTT DoCoMo, Robert Bosch, Samsung Electronics,
Siemens, SK Telecom, Sonera, Sony, Korea Telecom and Telecom Italia Mobile.
The 3G3P aims to cap future technology payments at 5% of product costs for 3G technology. 2G patent technology payment costs are
estimated to have cost some operators and telecommunication companies as much as 29%. But Qualcomm argues that the 5% cap it too low.
"One of our aims is to maximize our royalties," Lupin said. "Their objectives are at odds with Qualcomm's." He would only say that Qualcomm
charges single-digit royalties.
Both sides are trying to pour cold water on any suggestion of potential conflict in the future, but Qualcomm has in the past actively pursued
companies through the courts when it thought they had not paid royalties on its patents. Last month, Qualcomm won rulings in Japan and
Europe that upheld its claims on the CDMA patents. The Japanese ruling was the result of proceedings initiated last year by a group of
companies that included the three most powerful developers of W-CDMA: Nokia, Ericsson and NTT. Paul Jacobs, executive vice president at
Qualcomm, told the451 that Qualcomm will "vigorously pursue" any company that threatens its patents.
The 3G3P partners could save a lot of money in the new 3G network buildout, according to the sponsors of the new company. But Lupin says
Qualcomm is not impressed by the patents that the current members hold.
NewCo is the culmination of 3G3P, an agreement bashed out within the Universal Mobile Telecommunications System Intellectual Property
Association (UMTS IPA) between February 1998 and June 1999. 3G3P defines an approach for evaluating, certifying and licensing essential
patents for 3G mobile communication systems.
The 3G3P is a voluntary arrangement between telecom companies for the licensing of essential patents for 3G. It will enable individual companies to retain ownership and control of their patents in exchange for agreeing to license essential patents to any licensee who is prepared to enter into a reciprocal agreement, whether they have essential licenses or not. The 3G3P also includes a patent evaluation mechanism for evaluating patents submitted by holders to determine whether they are essential to the 3G standard. The group is non-profit.
Lupin believes the group may be successful in bringing down the cost of 3G implementations for 'minor' intellectual property claims, but "they don?t have coercive power. We feel comfortable because we have the support of the law."
Despite Qualcomm's claims, the 3G3P has filed a submission for competition request with the US Department of Justice, the Japanese Fair Trade Commission and the European Commission, all of which are under consideration.
"The 3G Patent Platform was defined by 41 major international companies," says Alcatel's 3G3P secretary and treasurer Serge Raes. "The 3G3P, formed under English law, is the vehicle responsible for implementing and financing the 3G3P within the new company [NewCo]. The 3G3P will terminate once NewCo is operational and commercially viable."
The 3G3P claims it has the support of most of the industry. It has recently won three further companies as promoters: Telit Mobile Terminal, Sharp and, perhaps most interestingly, Kyocera, the Asian-based manufacturer that bought Qualcomm's terminal business earlier this year.
Qualcomm currently provides chipsets based on its proprietary implementation of CDMA, called cdmaOne, which was adopted as a CDMA digital cellular standard. Qualcomm recently announced it will spin out its chipset business, dubbed Spinco, in the fall. The new company plans to design and develop chipsets for so-called multimode mobile handsets, which will include some GSM-based patents. The existing Qualcomm business will concentrate on its patent licensing business. The company's move has been widely interpreted within the industry as meant to protect its cdmaOne intellectual property from cross-licensing to GSM intellectual property holders.
Patent disputes have dogged second-generation GSM equipment manufacturers. They have developed products to standards that have been set by the European Telecommunications Standard Institute but have grown out of the research work of individual manufacturers and operators. Manufacturers currently buy licenses on a bilateral basis. Where both companies have equally important patents, this has involved bartering.
Spinco is Qualcomm's way of protecting the existing company from the patents held by other companies that are essential when building chipsets for 3G. The company can freely pursue patent revenue from the 3G market and leave Spinco to deliver chipsets that power future multimode phones. Multimode phones provide the ability to use a device wherever you are in the world, on whichever network, using whatever cellular standard.
"The advantage to Qualcomm," explains Jacobs, "is that as a primarily licensing company, we will not need to cross-license any technology from other companies, especially GSM technology. Spinco will be a pure semiconductor company with its own patent portfolio, able to trade the use of its patents in cross-licensing arrangements."
Qualcomm, claiming to have "over 1000 patents," is currently in the process of identifying which ones it intends to transfer to Spinco, says Jacobs. Spinco will not use these to collect royalties, but to arrange royalty-free cross-licensing arrangements. Key to the success of Spinco in the future will be its ability to obtain free cross-license royalty use of the GSM technology required to make W-CDMA chips. Qualcomm and Spinco patent holding is mainly CDMA technology.
3G3P's Raes says he doesn't know if Spinco will be interested in using the 3G3P services. "Whether they will become a member is not known. A lot depends on the future organizational structure of Qualcomm," was all that Raes would say on the matter. But Qualcomm's Lupin accepted that Spinco may become a member in the future.
Spinco is due to issue an IPO in the autumn, when it will also undergo a name change. Qualcomm plans to offer 10% of Spinco, currently valued at $28 billion. By April of next year, Qualcomm plans to distribute to shareholders the remaining interests in Spinco. The transaction is expected to be completed by August of next year.
Qualcomm previously spun out its services operation into Leap Wireless International, sold its infrastructure business to Ericsson and sold its handset manufacturing operation to Kyocera.
The two major divisions remaining at Qualcomm are the licenses and royalties business and a division containing OmniTracks - truck fleet management - as well as satellite operations and infrastructure. In addition, Qualcomm has great hopes that its emerging digital media cinema business will begin bringing in revenues next year.
Whether the 3G3P will have any effect on Qualcomm and the future development of 3G is uncertain. Both sides are currently doing their best to make light of the situation. Qualcomm claims it already has bilateral agreements in place for W-CDMA in any case. "The 3G3P will have no effect on us," says Lupin.
However, a number of individual operators, including NTT DoCoMo, France Telecom, T-Mobil and Sonera, have voiced concerns about the high cost of royalty fees and have said they would like to see a clearer understanding of what technology is covered by which patent. It will help new equipment manufacturers to compete, they argue. Several other manufacturers have suggested that it might be possible to circumvent Qualcomm's patents. A dark storm cloud hovers over the future of 3G at present; the long-term weather prediction is sunny with showers.
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