The intellectual property battle between Qualcomm and leading competitors and hand set makers has been stepped up a significant notch, with the US chipmaker suing Nokia, not over its core CDMA technology but over claimed patents for data over GSM. This has raised speculation that Qualcomm is gearing up for a sweeping claim directed at the whole GSM industry, which could shift the balance of power in mobile intellectual property again and could have a negative effect on the creation of low cost GSM devices for emerging economies.
Given that Qualcomm, in order to preserve and grow its most important revenue stream, chips, will almost certainly have to rework its approach to its patent revenue, the aim is probably to spread its royalties base wider, to compensate for possible lowering of the fees it can charge for CDMA technologies in future. The WiMAX world waits to see whether the company has managed to secure—or will acquire in future—any technology that could have claims to contain fundamental patents in 802.16. Behind the legal brinkmanship, however, there are other ways that Qualcomm is seeking to broaden its base and position itself for a future, years away, when CDMA-based networks are on the decline.
Most important are the platforms it can divorce from CDMA and which appeal to the multimedia ambitions of the operators—the MediaFLO mobile television system and the Brew content framework, in particular. Qualcomm has finally achieved a long held aim of penetrating the European cellco community with a deal with O2 for a key component of Brew, the UIone user interface technology.
Qualcomm is at the heart of the biggest intellectual property war in wireless since the fights over 3G standards and its own settlement with Ericsson. Engaged in legal battles with Broadcom in the US over patents and alleged anti-competitive practises, and now facing complaints to the European Union by six vendors, Qualcomm has upped the ante by suing Nokia, claiming the Finnish giant infringes 12 of its patents in its advanced GSM handsets.
But while Qualcomm goes on the offensive to defend its intellectual property base, the fate of its far more commercially significant products business will be decided by vendors and operators far more than by regulators. Here the outcome is far from clear – for instance, just as European vendors are mobilizing the campaign to cut Qualcomm down to size in 3G, the chipmaker has won a software contract with UK-based operator O2 that is its first major breakthrough for its strategy to break into the closed European territory.
The GSM claims
Taking the fight out of Qualcomm’s core technology base, CDMA, into GSM, a platform into which it originally had no input, is stunningly aggressive. The complaints against Nokia echo some GSM-related patent suits included in the tit-for-tat war with Broadcom in the US courts, and have raised fears that Qualcomm is gearing up for a general royalties claim against all makers of GSM handsets or chips.
Qualcomm claims it has fundamental patents that are infringed by the methods that modern handsets use to add data capabilities to GSM, although so far it says its issues are specific to Nokia and Broadcom. Specifically, Qualcomm says that some Nokia GSM/GPRS phones sold in the US infringe 11 of its patents and one belonging to a subsidiary, all of them concerned with enhanced wireless internet access and data transmission over GSM networks.
Nokia, for its part, claims Qualcomm has never even requested a royalty for the technologies it now cites, clearly perceiving the new suits merely as a response to the EU complaints. Qualcomm’s other accusers before the EU, along with Nokia and Broadcom, are Ericsson, Texas Instruments, NEC and Panasonic, and some further action against them may be anticipated.
The arguments from the counsels for both companies will drone on, and no clear decisions from courts or the EU can be expected for a couple of years or more, but several broader issues are clear, which are significant for Qualcomm’s future success and for the whole shape of the wireless equipment business.
Qualcomm needs to rethink its patent policy in the light of new market conditions, but is making it clear it will not do this readily. Instead it is gathering IP in all key wireless technologies and seeking to broaden its patent base to the extent that it is almost impossible for major handset and equipment makers to avoid it.
Spreading itself more thinly may also be an insurance policy in case it is forced – or deems it commercially necessary – to reduce its royalty levels, perhaps to the five per cent level advocated by Nokia and Ericsson in 3G. A wider portfolio would compensate in revenue terms for reduced charges. Of course, the critical question for Wi- MAX is whether Qualcomm has any patents up its sleeve – or will be able to acquire some – that would enable it to charge licensing fees on 802.16 products.
A rethink of royalties
Some carriers may complain about Qualcomm’s grip on its market but it is also important to remember that the chipmaker has an understanding of operator needs that is unique in the silicon industry, and it is applying this to broader markets too. Advanced technology and a canny insight into carrier priorities mean that, whatever the hostility to Qualcomm’s patents policies, its expanding range of platforms will continue to appeal and generate the major source of its revenues, chip sales. The FLO multimedia OFDM technology and the mobile broadcasting system based upon it, MediaFLO, are good examples of highly advanced engineering targeting an important new operator opportunity. And the adoption of the uiOne user interface products by O2 is a sign that it can attract the attention of non-CDMA service providers too. In the end, generating sales of its key platforms in previously closed GSM markets is more important to growth than extending royalty payments.
Some compromise on royalties policy is almost inevitable because Qualcomm badly needs to generate sales for its new WCDMA chips, in a market where it does not have the incumbent position and must challenge Texas Instruments and others. Bringing charges into line with the giants of the GSM community, but holding patents in more areas, would be one approach. This rethink will become more critical to the cellular equipment industry because of two factors – the challenge from broadband wireless alternatives like Wi-Fi and WiMAX, which so far are not heavily burdened with patent charges and may succeed in keeping patent payments under control; and the need to develop very low cost GSM and CDMA handsets for emerging economies, which will be impossible if royalties remain at current levels.
n these developing markets, it will be more important for Qualcomm to gain volume sales of its own silicon than to keep license charges high and so push business towards its rivals, while holding back market growth. An indicator of the future was seen recently when LG said it would make a low cost CDMA handset for developing nations using silicon from the only current manufacturer of EV-DO chips apart from Qualcomm, Korea’s Eonex. Such trends are highly dangerous to the CDMA giant.
Qualcomm may have to rework its intellectual property strategies, but it will not make concessions lightly, and in the mean time is looking to expand its base significantly. Europe is now a target, partly because it will be selling its W-CDMA 3G chips, and taking the 450MHz version of CDMA2000 into some countries such as eastern Europe. But it is also stepping up its focus on software technologies to lure in new customers and is talking up the interest of European carriers in MediaFLO and the Brew content download platform, which will be made independent of CDMA.
An important element of the Brew portfolio is uiOne, based on technology bought with UK start-up Trigenix last year. It offers a very graphics rich capability that is now an option within Brew and has just been adopted in the breakthrough O2 deal. Although uiOne gives cellcos more advanced tools to create innovative UIs – one of their most critical demands as they seek to differentiate and brand their services - it can also be put into the hands of end users. Qualcomm sees customized UIs moving alongside wallpaper and ringtones as a major revenue generator that will compensate operators somewhat for the loss of brand control.
Peggy Johnson, head of Qualcomm Internet Services, said: “Our acquisition of Trigenix was a big turning point. We found that in Europe, there was a strong need for differentiation.” Earlier this year, Qualcomm followed the Trigenix purchase with the acquisition of Elata, whose Senses platform for delivering content and applications over the air is platform agnostic and could be adapted for OFDM too. Importantly, Senses can automate the process of targeting specific services to customers depending on their profiles, allowing the carrier’s back end system to recognize a device as it connects to the network.
While bringing Brew facilities to non-Brew devices has immediate attractions, in the longer term, this effort could be even more important. It could be part of a content platform that could be adapted for non-cellular platforms, potentially incorporated with broadband wireless systems such as Flash-OFDM and FLO to create a 4G-style infrastructure that could be marketed to wireline and start-up carriers as well as cellcos and offer a challenge to WiMAX. With this, Qualcomm can make its bid for the convergence market, in which currently non-wireless carriers will add mobility and wireless functions to their mix using technologies such as WiMAX; and some cellcos will build parallel broadband wireless networks to extend reach and add new, high bandwidth services.
O2 will use uiOne initially on its high end X range devices to provide “a consistent user interface that our customers are able to easily identify with”, according to Ian Clarke, head of devices for O2 UK. "This agreement will enable O2 to further develop our understanding of customizing customers' mobile phones, allowing them to personalize their mobile experience." O2, one of the first European carriers to develop its own branded products, will also be able to remote update the UI using the new technology. Qualcomm’s first incursion into the closed world of western European 3G operators is yet another challenge to Nokia, which is also working on content delivery and user interface would-be standards based on its Series 60 and Preminet environments.
Qualcomm and Nokia have long been bitter antagonists, and Nokia even backed TI and STMicro to produce CDMA chips rather than have to turn to the San Diego chipmaker for its CDMA handset silicon. So far Qualcomm has fought off the TI threat effectively in its home market, but it is now fighting on far more fronts, and taking on a range of challenging roles. Whereas it is usually the handset maker that gets involved in interface software and operator requirements, Qualcomm the chipmaker is taking those elements on too, in a bid to increase margins, tighten control of the overall platform and influence carriers. The strategy is a creative one, and winning over operators like O2 will ensure that vendors have to keep licensing Qualcomm’s technologies.
But the process of expanding into broader markets, as well as the general progress of cellular technologies, will be accelerated if the CDMA supremo decides to create a new approach to patent licensing – one driven not by EU decisions but by market realities.
Copyright © 2005, Wireless Watch