*WSJ. Qualcomm, Ericsson Are Close to Pact To End Long-Running Patent Dispute
February 22, 1999
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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