Modoff- Project Stockholm Syndrome
Somewhere in Northern Europe, in a windowless room two floors below a snow-covered
tundra, we think the members of Project Stockholm maintain a war room. If you pass the
retinal scan and get through the blast door, you will probably find a dimly-lit, poorly-furnished
room lined with flat panel TVs tuned to CNBC and Bloomberg 24 hours a day. The blearyeyed
functionaries are likely monitoring day-to-day activities of the group, coordinating
lawsuits, ‘academic studies’, press releases, third party data reports, regulatory
investigations and trash pick-up schedules in San Diego.
Does this room really exist? We do not know. But after last summer’s onslaught of bad news
for Qualcomm we are ready to accept the company’s assertion that its competitors have
been working in concert to assault Qualcomm’s market position. On their conference call last
week, Qualcomm indicated that the group was code-named “Project Stockholm”, which is
just strange enough to be true.
We can understand the frustration which has brought the members of Project Stockholm to
such an endeavor. Qualcomm’s business model seriously threatens theirs. Qualcomm has
facilitated the entry of new handset vendors like LG and Samsung into the once cozy handset
industry. Moreover, they threaten to do it again helping companies like HTC, Huawei,
Techfaith and ZTE join in as well. For chip vendors like Broadcom and Texas Instrument,
Qualcomm has built a lead in the merchant market. Whatever you attribute as the cause of
that lead, it is formidable, challenging new entrants.
While banding together like this and pursuing negotiation by other means may have given the
Project members a tactical advantage in 2006, we think this strategy is ultimately flawed.
First, the carriers have not joined in the process, and since they are the end customers you
would think that they have an opinion on the matter. Joining the Project is probably not in
their interest.
Second, they have so far encountered mixed track records on the legal front. There have
been no clear cut victories for either side. In reviewing the various suits (and here’s a good
place to do that qualcomm.com
looks to us as if Qualcomm has won a few more rounds than it has lost. Admittedly, we are
not lawyers, and many serious cases remain. Nonetheless, deciphering competing press
releases tell us that some of the worst penalties have been taken off the table for Qualcomm,
but still hang over the Project members’ heads (via the injunctive relief sought by Qualcomm
from the ITC).
Third and more importantly, where does this process stop? The Project members have
opened a can of worms by turning to lawsuits which inevitably spawned countersuits. They
have been reduced to some desperate measures to fend off a competitor. Any meaningful
success will likely leave them hostage to judicial and political processes in the future. As we
have said in the past, relying on the courts can become a dependency. If they are not
successful, they will leave Qualcomm in a greatly strengthened position with a mountain of
legal precedents. We would caution the members of the Project that learning to love lawyers
and lobbyists is probably not healthy.
How is this going to end? The bleary-eyed functionaries in that windowless room could
probably tell you, but then they would have to kill you. |
