Very Interesting Article, (thanks GK Thread)>
May 24, 1999, Issue: 1062
Section: News
Royalty details, Qualcomm's silence threaten UMTS effort --
Possible 'showstoppers' shadow 3G patent pool
Anthony Cataldo
Tokyo - Telecom companies are struggling to complete by the end of June a
patent-pooling scheme for third-generation cellular phones that some say is
key to keeping equipment costs low. But the sheer number of companies
involved is making it hard to muster a consensus on royalty payments and
other issues. Moreover, the absence of one key patent holder-Qualcomm
Inc.-in formal negotiations may cause new difficulties.
As of now, about 40 companies are debating the formation of a "3G Patent
Platform" under the Universal Mobile Telecommunications System
organization. The idea is to create a mechanism to gather and set license and
royalty fees for key 3G patents for companies planning to build and deploy
equipment for the next-generation cellular standard. Members of the group's
executive council came here last week to meet with top executives of
Japanese companies in an effort to nail down the remaining issues.
"It's about 95 percent complete, but some of the remaining issues are
significant and they could be showstoppers," said Brian Kearsey, a director at
Alcatel and president of the UMTS Intellectual Property Association (UIPA),
which is overseeing the patent-pooling work. "There's no guarantee we're
going to succeed. It's very difficult, by virtue of the number of companies
involved."
Effect on pricing
If the group fails to garner enough support from its members and key players,
"the acquisition of the technology would be more expensive," Kearsey said.
That's a situation that many service providers, which hope to spark demand
by keeping 3G costs in line with current cellular technology, will be likely to
wince at.
Kearsey declined to give a full account of the remaining snafus, but he did
provide an example of one that was recently resolved and another that is still
under negotiation. In the former case, the UIPA decided that patent holders
would be barred from forcing potential licensees to pay for their entire
3G-related patent portfolio, a practice known as bundling. Instead, licensees
will be allowed to "cherry pick" individual patents they deem appropriate for
their own systems.
But while this will ostensibly prevent companies from gouging others for more
licensing and royalty fees, companies are still fighting over royalty percentage
caps. Currently, the UIPA is proposing a scheme to base royalties on a
percentage of the "X-works cost" of a product, plus a standard royalty, which
is a percentage of the X-works cost that will vary over time, Kearsey said. He
declined to disclose the proposed royalty percentages, saying only that they
are "generally acceptable within the working group."
The problem, Kearsey explained, is that some companies derive a significant
amount of their total revenue stream from royalties, and are concerned that the
royalty cap submitted for consideration is too low. A proposed compromise
would keep the royalties at a low level, while giving companies the assurance
that they would in turn enjoy a large number of licensees, Kearsey said.
While money matters appear to dominate the discussions, there are still some
basic procedural issues to overcome. For example, the group-which is made
up of companies from Europe, Japan and North America-has not decided on
whether to seek out an independent third party or form a group comprised of
member companies to determine which 3G patents submitted are essential and
need to be included in the licensing pool.
(The group did decide, however, to nominate a third-party licensing
administrator to handle the commercially sensitive information involved,
according to Kearsey.)
Even without a formal decision-making body in place, the UIPA has already
been relying on de facto outside arbiters to settle disputes. In the decision to
ban patent holders from forcing licensees to buy their entire set of 3G patents,
for instance, the U.S. Department of Justice settled the matter by telling the
group that the practice would be considered anti-competitive and violate
anti-trust laws, Kearsey said.
The wrangling over patent-licensing procedures and fees comes nearly two
months after Qualcomm and Ericsson resolved a longstanding disagreement
over CDMA interface patents by agreeing on a standard that supports
multiple modes of operation.
Even so, Qualcomm (San Diego) is still a wild card in the patent-pooling
effort. Qualcomm was a member of the UMTS group when it was formed in
February 1998, but deactivated its membership last September, Kearsey said.
UIPA still provides Qualcomm with regular reports, and has dispatched UIPA
chairman John MacNaughton, a disinterested retired English barrister, to have
high-level talks with executives of Qualcomm as well as other companies,
Kearsey said. He declined to divulge the outcome of those talks, however.
In a terse response to requests for comment, a Qualcomm spokeswoman
would only say that the company is part of the UMTS working group on
intellectual property. However, the company does not agree with any of the
proposed patent-pooling arrangements, said the spokeswoman.
By June 30, the UIPA hopes to have in place the cumulative maximum
licensing costs and an administrative body charged with managing the patents.
The patents will cover such areas as terminals, infrastructure equipment, test
equipment and all other 3G-related equipment that doesn't fit into those
categories.
Operational by year's end
The group hopes the patent-pooling mechanism will be operational by the end
of 1999, when the general International Telecommunications Union
standards-making process for 3G phones is due to wrap up. At the very
latest, UIPA wants the patent pooling to be settled by early 2000, which
would be about a year before Japan's NTT Docomo plans to roll out the
world's first 3G cellular service.
"It's important to put in place a mechanism consistent with the commercial time
frames," Kearsey said. He added, how-ever, that the patent-pooling
mechanism is being set up so it can function without fixed standards in place.
To expedite the process, Kearsey said the UIPA is try-ing to facilitate a direct
dialogue among executives, engineers and lawyers. The group is also trying to
build in as much flexibility as possible, such as giving companies a way to
depart from the normal licensing terms under special circumstances and taking
into account the many preexisting bilateral ties among telecommunications
companies. Kearsey's own company, Alcatel, for instance, has agreements in
place with Siemens, Motorola and Lucent Technologies, he noted.
But in the end, compromises will have to be made. "We can only succeed if
certain companies are willing to accept a solution that is not perfect for their
situation," Kearsey said. "If we're able to attract 60, 70 or 80 percent of the
owners of 3G technology, we believe we will be successful."
Copyright ® 1999 CMP Media Inc.
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