While the option extends until Dec 31st 2008, from a practicle standpoint, the option extends until the September 2007 timeframe which is when Nokia would normally make its next license payment for royalties in arrears. If they don't make that payment in full, they are at risk for triple damages based on the actual amount due as well as loosing the option to renew the agreement under the present terms. Therefore, I think there is a good chance this thing will get settled before the next payment due in September. At the very least, I think Nokia will pay the full amount due in September in order to keep the option in play while they continue to try to negotiate a lower rate and otherwise generally try to destroy QCOM's business model.
I conclude the same. Although NOK has the option to renew the contract until 12/31/08, it's Q's position that if NOK is in breach of the contract (i.e using Q's IP, but failing to pay royalties for the commensurate period), then NOK's rights under the option provision get extinguished.
We don't know what the contract provides with respect to the conditions under which rights under the option provision survive expiration of the contract 4/09/07. However, it's fair to say w/o any information, that when the option provision was negotiated, the parties likely contemplated two scenarios: (i) NOK fails to renew the contract by its expiration date, but continues to use Q's IP & pays Q royalties based upon those IPRs not expiring; or (ii) NOK fails to renew the contract by expiration, and ceases using Q's IP because it has alternative technology to use in its phones.
NOK has chosen a 3rd scenario, one that may not have been specifically contemplated at the time of negotiation: non-renewal of the contract/cont'd use of Q's IP/ non-payment of royalties to Q. However, in contract law, in particular, the UCC (Uniform Commercial Code) which deals with tangible goods, where the contract is silent, terms may be inferred based upon the parties "course of performance" following execution of the contract, as well as "course of dealing" prior to entering into the contract. It these principles of contract law are applied, I think a convincing "quid pro quo" argument may be made that if NOK uses Q's IP, it must pay royalties. To not do so, it would be in breach, material breach, which would permit Q to terminate the contract altogether, specific the option provision upon which NOK is hanging its hat.
NOK has likely to resorted to this tactic because it can argue that since some of Q's IPRs are fully paid-up, it cannot readily determine how much it should continue to pay Q for use of its remaining IPRs that survive the 4/09/07 renewal date. NOK is playing the game that its not failing to pay royalties for use of Q's IP, but that it cannot determine the proper amount to pay, & therefore counter argue it is not in breach.
This whole dispute is centered upon "what amount" should NOK pay in royalties for use of Q's surviving IPRs. This, obviously, is a fact intensive matter. We, here, devoid of most facts w/r/t royalty rates, are ill-equipped to determine whether NOK's "good faith" tender is even in the ballpark.
On one-hand NOK has come up with the negotiating strategy that its IP is now worth more than it was when the contract was entered into in 2001, thereby giving credence to its measely tender of payment to Q a couple weeks ago. However, on the other hand, such offer may not be consistent with course of performance under the contract, because royalty payments under the contract reflect relative IP values that were negotiated & agreed upon at the time the contract was entered into.
NOK is likely to argue that notwithstanding course of performance under the contract, it's course of dealing with Q prior to entering into the contract, contemplated a renegotiation of royalty rates b/c it believed by the time of expiration, the relative value of its IP would be significantly greater. So, we're back to core argument we continually hear from NOK, that its IP is worth more today than in 2001, & therefore Q's is worth less.
My conclusion regardless of NOK's arguments as to the relative value of its IP v. Q's, it is still obligated to make royalty payments for use of Q's IP it continues to use, based upon relative value of each party's IP that were agreed upon at the time the contract was entered into. If and when the contract is renewed by exercise of the option, or a new agreement with new terms is entered into, adjustments can be made to the paid royalty stream over the option period to reflect the new negotiated rates.
So long as NOK is willing to make royalty payments that are reflective of its relative IP value under the contract, it can afford to drag this dispute on until 12/31/2008. However, if it is unwilling to "get real" with its payments by Sep 2007, as state, then it risks being held in breach, & losing all rights it currently has to renew the existing contract.
In sum, where NOK is on royalty payments today, I'd say time is more on Q's side than NOK's. |
