Qualcomm Inc (QCOM)

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Nokia considers US injunction in Qualcomm case unlikely
20th October 2006
By Rik Turner

http://www.cbronline.com/article_news.asp?guid=2B5085CA-C845-4264-9EE1-9CE968562F84

Nokia Corp thinks it unlikely that a US court would issue an injunction against the sale of its handsets in that market if it fails to sign a new IPR licensing deal with Qualcomm Inc by the time its current one runs out on April 9, 2007.

The Espoo, Finland-based mobile phone and network equipment manufacturer also published its third-quarter figures, with 20% top-line going only some of the way to offset declining margins and lower average selling price on its handsets as it ramps up its business in low-end devices for the developing world.

However, the highlight of its conference call to discuss the results was the discussion about intellectual property rights, where it was concerned to exude confidence on the subject of its litigious relationship with Qualcomm.

CEO Oli-Pekka Kallasvuo and CFO Rick Simonson had already mentioned the IPR issue in their opening remarks, with Simonson commenting that "the quality of our patent portfolio stands up to those of Qualcomm and others." That was only the beginning, however, as Simonson was prepared to get quite a bit more specific. He said: "we don't believe a US court will issue an injunction when we're still negotiating." He also cited the US Supreme Court's unanimous ruling, in May, in eBay versus MercExchange patent case, whereby a plaintiff needs to pass a four-factor test in order to receive an injunction against an infringer: 1) it has suffered irreparable injury; 2) remedies available at law are inadequate to compensate for the said injury; 3)a remedy in equity is warranted in light of the balance of hardships between plaintiff and defendant; and 4)the public interest would not be disserved by a permanent injunction.

Simonson argued that, using this four-pronged test, the outcome favors Nokia. To add steel to his comments, however, he also noted that the process is not a unilateral one, and Nokia could also seek an injunction against Qualcomm, as it too has IPR going into the latter's products in the area of W-CDMA.

Simonson said that even though Nokia is and expects to remain a net payer of royalties on IPR for the foreseeable future, the balance is about to change between the Finnish group and its opposing litigant. This is thanks to its decision to exit the CDMA market, at least in terms of R&D and actual manufacturing of handsets based on what he called Qualcomm's "proprietary standard" at the end of the first quarter of next year.

Instead, he said Nokia will use "selected ODMs" to address that market, particularly in the US. Mary McDowell, head of Nokia Enterprise Solutions, recently reiterated to ComputerWire that the company intends to have a CDMA offering in its Eseries of business smart phones, which if nothing else will mark the entry of the Symbian OS into the CDMA world, unless Nokia is prepared to dump the OS in which it is the largest shareholder in favor of, say, Windows Mobile 5.0 for that market.

Once Nokia has ceased actually designing and making CDMA phones, the responsibility for paying royalties on that technology to Qualcomm will pass to its eventual ODM partner(s). That will leave Nokia to pay Qualcomm royalties only for the IPR it owns in GSM and W-CDMA, while Qualcomm will also have to pay Nokia for its IPR in those areas, which may actually work out with Qualcomm owing it more than it owes Qualcomm.

When asked what would happen in the event of there being no deal on April 9, Simonson said cash payments to Qualcomm would cease until a new deal was in place.