Might send this tomorrow:
(All the other responses were excellent, I just needed to do something myself - maybe the torrent of communication will generate some positive reactions).
Paul Maidment
Editor, Forbes.com
Executive Editor, Forbes
Re: “Pay Up Or Else” by Elizabeth MacDonald 12-22-03
Dear Mr. Maidment:
Ms. MacDonald’s depiction of InterDigital Communication Corp. in the above referenced article was gutwrenchingly biased. Loaded with seriously misleading statements (which I will outline) and missing at least two essential positives (also outlined), the article appears to intentionally miss, or understate, the remarkable technological accomplishments and immense financial potential of one of America’s most prolific wireless technology developers.
Let’s start with Ms. MacDonald’s incredible and totally unsupported statement (actually not even a complete sentence): “Worrisome, as some of InterDigital’s most valuable patents expire in 2006”. Seriously misleading? Yes, in fact she is dead wrong. Ms. MacDonald fails throughout the article to distinguish between InterDigital’s 2G patents (TDMA, CDMAone, GSM, GPRS, etc.) and their 3G patents (WCDMA FDD & TDD, CDMA2000). The only patents expiring in 2006 are 2G patents – and isn’t it interesting that the patents are expiring just the technology is disappearing (a huge positive for InterDigital). The “most valuable patents” in InterDigital’s portfolio are not expiring in 2006, they are the hundreds of 3G patents that will be utilized in the most exciting technology development on the horizon: fully mobile internet experience anywhere in the world fitting in your shirt pocket. In 1999 InterDigital completely shifted gears, dropping its product development and focusing entirely on cooperating in the development of the third generation (3G) of wireless technology – from that date they have made more than one thousand contributions to the 3G standards bodies and more the six hundred of those have been accepted. InterDigital is not about the 2g patents that Ms. MacDonald calls most valuable, InterDigital is about the “bleeding edge” technology of 3G and beyond.
The second seriously misleading statement in the article is a (mis)quote from InterDigital’s president, Howard Goldberg: “Any company can design around our patents, but our inventions are the simplest, most elegant and cheapest way to make a handset,”. InterDigital has told its shareholders many times that it holds essential patents for all five 3G standards. Essential means they cannot designed around. I’m certain you will hear directly from Mr. Goldberg on this gross error – this is way beyond a context issue, the most important facts communicated by Mr. Goldberg were ignored by your writer.
Ms. MacDonald’s statements regarding InterDigital’s profitability and financial condition were both seriously misleading. With regard to profitability, she downplays recent success and highlights pre-1999 results (“InterDigital has only recently stopped being a big money loser. It turned a profit…in four of the last five years, but only five of the last fifteen”). Further, regarding financial strength she says “It has generated free cash in only three years since 1988”. In academic circles, her assertions are called “data mining”, that is, if you dig long and deep enough you can find data to support your point. The germane facts here are that InterDigital’s recurring royalty revenue (and profitability) are increasing nicely and that InterDigital currently holds about $125 million in cash with virtually no debt. That was some effort Ms. MacDonald had to make to dig up enough dirt to cover up the notable financial progress InterDigital has made over the last four years. In fact, InterDigital’s current financial strength gives them the staying power to demand full and rightful compensation for their Intellectual Property Rights – a factor your writer chose to ignore.
My last example of seriously misleading material in Ms. MacDoanld’s article is her questioning of InterDigital’s accounting for money from legal settlements. These two paragraphs are unnecessarily inflammatory because they imply some kind of wrongdoing. Her expert, Charles Mulford, considers the payments nonrecurring, while InterDigital and its auditors consider the payments as operating income. Just because InterDigital had to sue to get paid doesn’t change the character of the payments.
Now, here are two very important endeavors Ms. MacDonald chose to leave out:
First, InterDigital’s 1999 licensing contract with Nokia (the 2G rates for which are now being arbitrated) included a technology development agreement whereby InterDigital would develop WCDMA TDD (Time Division Duplex) technology for Nokia’s nonexclusive use. The TDD technology resulting from the agreement would belong to InterDigital and could be licensed by InterDigital but Nokia would license for free. The upshot is that InterDigital is one of two world leading TDD experts (the other being Siemens); and, TDD with its huge spectral efficiency advantages is expected to be deployed worldwide as WCDMA TDD in Europe and as TD-SCDMA in China. Some even say that TDD technology will play an important role in the next generation (4G?) of mobile wireless data. (The InterDigital TDD accomplishments and potential would make a great story in itself).
Second, InterDigital and Infineon Technologies entered into a broad long-term strategic partnership in 2001 to develop WCDMA chips. Infineon, formerly a division of Siemens, is the largest seller of 2G GSM chips. This partnership holds great potential for product sales and validates the importance of InterDigital’s 3G IPR.
I agree with Ms. MacDonald and the analyst she quoted (Frank Marsala) that the road ahead for InterDigital will not be smooth. It should be clear as day that the world’s largest cell phone companies are not eager to pay any more than they have to for any component, including IPR. There may even be more litigation ahead. But, the important parts of the InterDigital story are that they do own essential IPR for all 2G and 3G standards and they have the financial capacity to battle the industry goliaths for fair royalty payments.
Having followed InterDigital’s every move for the last four years I have come to marvel at the breathtaking accomplishments of this tiny company in King of Prussia, PA. These folks are living the ultimate free-enterprise ideal – follow your dream. Ms. MacDonald pooh-poohed InterDigital’s “ideatoriums”; but, to me, they represent the very best in American ingenuity.
Sincerely,
FCD
