Update: Nokia, Qualcomm squabble over CDMA license

Nokia unable to sell 3G phones without access to Qualcomm's CDMA patents

Terse statements this week from Nokia and Qualcomm point to a licensing dispute over Nokia's continued use of important Qualcomm CDMA patents.

In a report to U.S. regulators on Wednesday, Qualcomm said a licensing agreement that allows Nokia to use Qualcomm's CDMA (Code Division Multiple Access) patents expires in April 2007, and that there's no certainty a new contract will be signed by that time.

Without access to the patents, Nokia can't sell 3G (third generation) phones or other handsets that use Qualcomm's CDMA technology. Nokia would also be prevented from selling equipment to operators for 3G and CDMA networks.

Analysts expect an agreement to be reached eventually, since the patents are seen as essential to Nokia's business. The handset maker may be creating noise in an effort to reduce the licensing fees it pays to Qualcomm, which some vendors have complained are too high.

In a brief statement Thursday, Nokia said it couldn't comment on the negotiations with Qualcomm due to "a nondisclosure agreement."

The Qualcomm filing likely indicates that the companies are struggling to negotiate the new contract, said Caroline Gabriel, an analyst with Rethink Research. "If Qualcomm feels they have to report this to investors, they must feel it's a real risk that it could cause a problem," she said.

Speaking during a conference call on Thursday to discuss quarterly financial earnings, Nokia’s chairman and chief executive said he thinks Nokia is in a solid bargaining position with companies like Qualcomm. "We believed last year and we believe it even stronger today that our negotiating position will be stronger than it has been in the past," said Jorma Ollila.

Nokia's expanded intellectual property portfolio is one reason for its stronger bargaining position, Ollila said. "Our intellectual property rights put us in a pretty nice position, much better then was the case when some of these earlier agreements were put in place," he said.

The more intellectual property Nokia owns and contributes to relevant mobile phone standards, the less royalties it has to pay Qualcomm, said Gabriel. This arrangement is part of a system the mobile vendors agreed to when contributing their intellectual property to the standards, she said. In addition, Nokia could at least threaten to raise the rates it charges Qualcomm to license patents from Nokia as a negotiating tool, she said.

Qualcomm's filing also noted that it would stop receiving royalty payments from Nokia if the contract isn't renewed. It will also have to stop selling some chips that rely on Nokia patents.

Nokia is among several companies that filed complaints with the European Commission late last year, charging Qualcomm with anti-competitive behavior. They accused Qualcomm of overcharging for the use of patents that it contributed to the 3G standard.

With that in mind, the filing from Qualcomm could indicate that Nokia is pushing hard to change the terms of its contract, Gabriel said.

"It seems logical that Nokia is trying to get the bill down and set a precedent for the whole industry," she said. Qualcomm has said in the past that it offers the same terms to all vendors, so if Nokia manages to negotiate its licensing fees down, the rest of the industry will benefit too, she added.

It's unclear, however, how much bargaining power vendors like Nokia have with Qualcomm. "If Qualcomm sticks to its heels and says no, take it or leave it, what can Nokia do?" Gabriel said. "It's not like Nokia can stop selling handsets."

Copyright © 2006 IDG Communications, Inc.

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