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Technology Stocks : Qualcomm Moderated Thread - please read rules before posting -- Ignore unavailable to you. Want to Upgrade?

To: Qurious who wrote (146643)	5/29/2018 5:53:11 PM
From: Jim Mullens	10 Recommendations Recommended By alanrs Fiero garrettjax Jon Koplik kech and 5 more members Read Replies (1) \| Respond to of 196487

Curious re: QCOM IP / royalty business model ................. Art, are you aware of any other supplier of parts for a handset -- or, for that matter, a PC -- which charges a royalty for its IP based on the construed value of the entire device? Does Intel do that for its cpu's? Does ARM? Does MSFT do that for Windows? Everyone of them also claims IP in the parts it sells. This is how the industry works as far as I am aware. If I am remiss, correct me. Based on what I know from my experience in in this industry, Q is the exception, hence all the problems they've had with regulatory bodies and disgruntled customers. >>>>>>>>>>>>>>>> It’s my understanding in the early days of the cellular industry when MEN (Motorola, Ericsson, Notkia) ran the show, charging royalty based on the price of entire device was the modus operandi. It’s been said they effectively restricted competition by assessing outsiders upwards of 20% royalties to enter the market while MEN crossed licensed each other to negate their royalty costs. That all changed in 1999 when QCOM prevailed in its WCDMA / UTMS litigation against Ericsson, breaking the MEN domination and permitting others (Asians) to enter the cellular marketplace. Charging royalty at the device level with separate and distinct contracts for cross-licenses, etc. is how the cellular industry has operated for over three decades. QCOM didn’t invent the device royalty model, it perfected it while reducing the restrictive rates / terms so others (Samsung / LG/ Sony / Kyocera, etc. could enter the market.

To: Qurious who wrote (146643)	5/30/2018 9:49:51 AM
From: Art Bechhoefer	1 Recommendation Recommended By VinnieBagOfDonuts Read Replies (1) \| Respond to of 196487

Qurious -- There is a saying often used by economists, to wit, "other things being equal," from the Latin "ceterus paribus." Other things being equal, your point is well taken, that the royalty rate should be based solely on the value of the component or part that utilizes a patent claim. But there is a big difference between what Intel, Microsoft, and ARM make, and what Qualcomm does. Intel and Microsoft each produce their own product. Intel, in the form of chips that they make in their own factories. Microsoft in the form of software that it designs and reproduces. ARM is a little different, in that it designs a product, and like Qualcomm, has the product made elsewhere by another firm. But ARM basically designs a single product, a processor that uses its patented method of getting work done, and which can be modified as necessary by the intended users, which include both Apple and Qualcomm, each designing processor versions based on the ARM patents. Qualcomm is different because it, first of all, makes several different product designs, and second, those designs are not turned into products at a Qualcomm factory but by firms throughout the world that choose to use those designs. If Qualcomm made a single product, for example, such as a system on chip that combines a processor and modem, sold as a unit, and if Qualcomm made no other products or offered no other designs than that system on chip, then you would be absolutely correct: They should charge a royalty based on that one product alone, at the component level. But if many Qualcomm patents are involved in the creation of a single device, such as a smartphone, then would you advocate calculating royalty fees based on each claim? That is a horrendously difficult method of not only compiling total fees owed but also monitoring the fees to make sure they relate to each and every claim in a single smartphone or related device. In short, I think it is very understandable and logical that the variety of claims on patents held by Qualcomm be arranged into a single bundle, provided that the overall rate remains reasonable. And at a rate of 3% or so, I hardly think that there is an argument that the rate is unreasonable, coupled with the fact that the device wholesale price is also capped. That is why Qualcomm doesn't apply royalties to chips using Qualcomm patent claims, but made by other firms, including firms not under contract with Qualcomm. The royalties on those chips are applied and paid only by the device manufacturer, at the wholesale level. The other qualifying factor in this arrangement is that the patented chips and related components made by others can be sold only to Qualcomm licensees. This contractual requirement protects Qualcomm against patent exhaustion, as ruled on by the Supreme Court in the case of Intel v. Quanta, where Intel chip designs, produced by Samsung and later sold to Quanta, were subject to royalty fees paid only by Samsung to Intel, not by Quanta to Intel. The contractual exception to exhaustion in Quanta is mentioned in the Supreme Court ruling. So, as I noted above, your view on charging royalty fees based only on the individual components is correct, other things being equal. In this case, they're not equal. Art