BRONX, I don't think Nomura said it would be years before NOK started paying. My reading is that we could have a judicial decision on the royalty for the essential patents, but afterwards Qcom could initiate numerous lawsuits against NoK for infringement on the non-essential patents. It would take years for that to get through the courts and for NOK to be paying, effectively, the current rate.
As I discuss below, bundling is not an antitrust issue; the New Jersey court rejected Broadcomm's case in that regard, if I recall correctly. The issue is whether bundling meets the obligations of the FRAND contract, which is different.
Last night I read the body of the Nomura Qualcomm: School of Hard Noks report. Richard Windsor is the first analyst who wrote a comprehensive report and really gets it. He talks about the old handset players using their IPR to keep out competitors and the fundamental disagreement being over the vertically-integrated model vs. Qcom's model of selling IPR to anyone, which opened the market to small handset makers and essentially put the Asian producers into business. It says Nokia is beginning to license its IPR to other chip makers so as to get additional suppliers, that TI is dependent on Nokia IPR and software and therefore couldn't meet the needs of MOT. He says Qcom chips are expensive but because they have lots of applications by integration (GPS, a processor, RF and camera all in one chip) and the manufacturer gets the software with it, they are no more expensive or are less expensive than having to acquire software or additional chips to complete the package. Basically, with Qcom, you put in the chip and you have a phone with lots of capabilities, so its chips come out easier to manufacture and cost effective. Others cannot compete because they don't have the volume to spread the R&D costs over so many chips, and even with new chips in new standards or upgrades to standards, Qcom has the built in experience wtih the prior versions to do it efficiently. Despite this, Nomura recognizes that most IPR holders in the industry see Qcom as putting a "tax" on the industry; obviously, they are not looking at the cost savings. Furthermore, Nomura calculates the pass through rights as lowering the implied royalty rate from 13.8% to 10.2%. That means Qcom actually saves its customers from paying royalties of 3.6% to others. Damn cheap system, if you ask me. The 5% handset royalty and the cost of the chips are actually very cheap when all the efficiencies are taken into account, including saving a lot of R&D that would otherwise be necessary.
Nomura actually sees present fair value at $47; it sees the market pricing in a big loss to NOK. It went through three scenarios, a loss where NOK never pays anything, a mid range, and a win by Qcom with suits over implementation patents that gives the $70 value. One of the effects of NOK using its clout and the dislike of Qcom to exclude Qcom IPR from essential status imho is that it leaves a lot of non-essential patents out there that may be fundamental and very hard to get around. The potential for infringement thereby increases, Ca-ching on royalties without price limit.
When you actually read the body of the reports, it is not that clear that the one-price-per-all will be declared violative of FRAND or that Nomura believes that it is, in any way, a lock--just a solid possibility. It's a FRAND based argument, that the licensee is entitled to unfettered availability of the essential patents, therefore arguably requiring a license of everything violates that right. It's not an anticompetitive argument but a FRAND-based argument.
Another thing I really liked about Nomura's Master Craftsman report was that the writer took Nokia's own arguments and theories and used them against Nokia in a beautiful fashion. The best way to win a legal argument is to use the other side's argument to show how you win--assume they are right but they lose because of their own argument.
I think Art talked about this, but if you try to calculate the amount of the royalty that is for essential patents vs. non-essential, you get where Nokia wants--a calculation of what it is required to pay under FRAND for only essential patents. Nomura's theory actually gives NOK what it says it wants. (Remember, Nomura still thinks NOK is nuts to open the issue becuase it can get killed on the implementation patetnts.)
One of the things I have said from the beginning is that Judge Strine would try to rule for Nokia on the law and Qcom on the facts to create a decision that cannot be appealed. The extension issue is apparently in the second part of the trial unfortunately. I am beginning to think that the best way to prosecute the extension case is to focus on Nokia's continued use of the non-essential patents, which it can do only under the licensing agreement. Nokia may have a right to use essential patents but not the non-essential ones; by continued use of non-essential patents, it extended the licensing contract. Otherwise, it knowingly or wilfully infringed, and one normally interprets conduct as lawful as opposed to unlawful. Nokia's defense would then have to be "we didn't know we were using the patents" or yes, we intended to wilfully infringe but only intend to pay damages, and Qcom continued to use our patents.
If Judge Strine separates the patent pool, then he can assign a value to the essential patents and declare a license. He could stop there, and leave it up to Qcom to sue for infringement in many countries on the non-essential patents. That's Nomura's theory. Or, he could go farther, how much farther I don't know. Frankly, I haven't read the latest pleadings in toto but will do so to try to get an idea of what relief the parties are asking for. Remember, Nomura theorizes that Nokia is dancing around the issue, because it knows it is using implementation patents or it fears that it is. The question is whether Nokia will come to its sense and extend the licensing agreement formally. Perhaps market forces will push it to do so. Prior to the expiration of the licensing agreement one year ago, Nokia announced it would get out of cdma. It is now eating its words and trying to get back in with the U.S. carriers because its position has worsened so much. |
