To all - WSJ article on possible settlement between QCOM and ERICY
February 22, 1999
Qualcomm, Ericsson Are Close to Pact
To End Long-Running Patent Dispute
By QUENTIN HARDY
Staff Reporter of THE WALL STREET JOURNAL
Qualcomm Inc. and Sweden's Telefon AB L.M. Ericsson are close to an
agreement that would end a long-running patent dispute, and could help resolve
a looming international trade conflict over the future of wireless
communications, according to people familiar with the matter.
The agreement would allow the two companies to enter into each other's core
businesses, with potential rewards for both. Ericsson, the world's third-largest
maker of wireless phones, would be able to manufacture phones using a
wireless technology called CDMA that has been championed by Qualcomm
and is popular in the U.S., these people said.
Qualcomm, based in San Diego, would get access to Ericsson's patents to a
rival digital technology called GSM that is dominant in Europe. Qualcomm,
which gets much of its revenue from making wireless communications chips,
would be able to make semiconductors for "global" phones using both
technologies. It also might make such telephones itself.
Qualcomm is the best-known backer of CDMA, which stands for code
division multiple access and competes with GSM, or global system for mobile
communications. Ericsson filed suit in 1996, alleging that Qualcomm's CDMA
technology violated Ericsson patents. The case was expected to come to trial
in April in federal court in Marshall, Texas.
Neither company would comment on the specifics of a settlement. People
familiar with the matter said final terms haven't been set, but both sides appear
committed to ending the dispute soon.
In recent weeks, Irwin M. Jacobs, chairman and chief executive of
Qualcomm, has had a series of discussions with Sven-Christer Nilsson,
president of Ericsson, about ways the two parties could use each other's core
technologies.
"I don't have anything to announce yet, but I'm optimistic," Mr. Jacobs said in
an interview last week. He expressed hope that the agreement would include
"something like" Ericsson manufacturing CDMA phones under a license from
Qualcomm. He also said Qualcomm has been talking with various
manufacturers, including Ericsson, about acquiring GSM technology.
Cathy Egan, an Ericsson spokeswoman, said it also was hoping for a
negotiated settlement. "We don't want to litigate," she said.
Once a vocal opponent of CDMA, Ericsson has come to embrace a version of
CDMA for future wireless communications. One person familiar with
Ericsson's strategy said the Stockholm-based company wanted "to trade
patents, and get market share" in the CDMA world.
The deal would bring peace between the two chief combatants in a fight over
the approved technical specifications of so-called third generation, or 3G,
phones. The 3G equipment is expected to be capable of carrying digital traffic,
including voice and Internet messages, at high speeds to a large number of
customers.
But some proposed 3G specifications could make obsolete several billion
dollars worth of existing CDMA systems, while others would jeopardize the
installed base of GSM equipment. Officials from both the European community
and the Clinton administration, prompted by their respective European and U.S.
companies, recently have clashed over the specifications. In January, several
U.S. officials, including Secretary of State Madeleine Albright and Federal
Communications Commission Chairman William Kennard, sent a letter to
European Commissioner for Industrial Affairs Martin Bangemann expressing
concern that Europe would adopt a single, exclusive standard for 3G.
Instead of a single standard that favors one company over another, Ericsson
and Qualcomm executives say, regulators are likely to recommend multiple
standards that allow existing GSM or CDMA networks to migrate to 3G, with
all using a common radio interface similar to CDMA.
A third standard, called TDMA, or time-division multiple access, also would
have an approved migration path. "There will be a family of standards. That's
how it will come down," said Keith Shank, director of strategic marketing for
Ericsson.
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