To all - please excuse my filling up more space on this thread, but, I was looking over the whole "audit trail" (as I like to call it) relating to Marc Cabi's comments on Qualcomm, and noticed that no one ever did post the text of that Korea Herald article, so, here goes ...
08-07-98 ETRI Plans to File Suit Against Qualcommm over Royalty Sharing
Yu Kun-ha Staff reporter
The Electronics and Telecommunications Research Institute is preparing for a legal battle against
U.S.-based Qualcomm Inc. for its share of the royalties the U.S. firm collects from Korean
manufacturers of CDMA (code division multiple access) equipment and handsets.
ETRI President Chung Seon-jong said yesterday the institute will commission a law firm to file a
suit against Qualcomm at a court in San Diego, Calif., where the American company is based.
''We believe Qualcomm is not paying us our due share of the royalties it receives from Korean
firms,'' Chung said.
Since October last year, ETRI has repeatedly asked Qualcomm to share royalties in accordance
with a 1991 agreement. When negotiations failed to produce results, the institute resorted to legal
means.
ETRI and Qualcomm entered into an agreement in April, 1991, to jointly develop a commercial
CDMA cellular system to be deployed in Korea.
The joint development efforts were successful, allowing Korea to launch the world's first
commercial CDMA-based digital cellular services in 1996.
But the agreement, which was drafted by Qualcomm, contains clauses that are disadvantageous to
ETRI.
''It was a shame that we had accepted the draft as presented by Qualcomm. But we cannot change
the agreement now. Qualcomm will never allow it. However, we are not planning to file a suit to
revise it, but to force Qualcomm to abide by it, unfair as it is to us,'' Chung said.
The joint development agreement has a clause on royalty sharing that entitles ETRI to 20 percent of
the running royalties that Qualcomm receives from Korean firms that manufacture CDMA systems
using the jointly developed technology.
But Qualcomm has attached many strings to the clause. First, it applies only to four Korean firms _
Samsung Electronics, LG Information and Communication, Hyundai Electronics Industries and
Maxon Electronics _ which participated in the joint development project.
Second, it is applicable only to equipment and handsets that the four firms sell in the Korean market
_ not to products they export abroad, even though they use the same technology.
Third, the running royalties referred to are net running royalties, not the total running royalties that
Qualcomm receives from the four Korean firms.
Fourth, the clause stipulates that Qualcomm pay ETRI its share of the royalties 45 days after the
end of each calendar year, though it collects royalties from Korean firms on a half-year basis. This
allows Qualcomm to earn interest rates on ETRI's money for six months each year.
Fifth, the provision says that all applicable taxes relating to Qualcomm's royalty payments to ETRI
be borne by the recipient.
Unfair as ETRI officials feel these conditions are, the company must adhere to them. Chung said
the dispute between the two companies arose because Qalcomm refused to give the institute its due
share of the royalties.
Under the royalty-sharing accord, Qualcomm paid ETRI $1.51 million in March 1997, exactly 20
percent of the $7.59 million it received from the four firms in running royalties on the equipment
and user terminals they sold in the domestic market during the first half of 1996.
But this February, Qualcomm paid ETRI just 10.8 percent, or $8.4 million, of the $77.80 million it
received in royalties from the four firms for the one-year period from July 1996 to June 1997.
While ETRI said that its share should amount to $15.56 million, Qualcomm asserted that $8.4
million was exactly 20 percent of the net running royalties it received.
The difference arose because Qualcomm excluded from the total net running royalties the portion
relating to the four Korean firms' domestic sales of PCS (personal communications services)
equipment and handsets.
Qualcomm did that on the grounds that the joint development agreement is applicable only to
cellular system and handsets, not to PCS products.
In fact, the agreement does not mention PCS at all, while Qualcomm's license agreements with the
four firms specifically refer to PCS.
ETRI dismisses Qualcomm's stance as ''totally nonsensical.'' ''Everybody knows that PCS is based
on the same CDMA technology as that used for digital cellular service in Korea,'' Chung said.
''It is common sense in the global telecom _ for that matter any other _ industry that an agreement
concerning a certain technology is valid for the technology's applications. Digital cellular and PCS
services in Korea represent different applications of one and the same CDMA technology we
developed,'' Chung said.
In March, facing ETRI's protest, Qualcomm suggested a compromise. It said it will pay ETRI
three percent of the royalties it collects from Korean firms with respect to their sales of PCS
handsets _ not including equipment.
But simultaneously, the American firm suggested reduction of ETRI's cellular royalties from the
present 20 percent to 17 percent.
It also proposed payment of ETRI's shares within 30 days _ not six months later _ from the date it
receives royalties from Korean firms.
A week later, it also disclosed the details of its royalty receipts from Korean firms for the
one-and-a-half-year period from the first half 1996 to the first half of 1997. Qualcomm said its total
royalty receipts from the four Korean firms amounted to $85.55 million during the period. Of the
total, only $49.62 million was net running royalties, 20 percent of which, or $9.92 million, it had
already paid to ETRI.
These figures do not include the royalties that the four firms paid for their CDMA shipments
abroad.
Rejecting Qualcomm's offer, ETRI asked law firms to review the whole issue in April. ''They told
us that if we file a lawsuit against Qualcomm, the odds are on us,'' Chung said.
ETRI is soon to select a law firm. While preparing for a legal fight against Qualcomm, the institute
is calling on the American firm to settle the dispute through talks.
''Our position is clear. We should get our due share which is set at 20 percent of the royalties
Qualcomm collects, be they cellular or PCS,'' Chung said.
He added that it is preposterous for Qualcomm to receive royalties from Korean firms for their
sales of PCS products, while refusing to pay ETRI part of them, given the fact that cellular and
PCS services are the same services with different names.
Copyright 1998 Korea Herald. All rights reserved. |
