InterDigital Inc (IDCC)

[spencer]

http://www.sec.gov/Archives/edgar/data/924613/000095012308003172/u54931e20vf.htm

Intellectual property rights litigation

InterDigital

In 1999, we entered into a license agreement with InterDigital Technology Corporation and Interdigital Communications Corporation (together “IDT”) for certain technology. The license provided for a fixed royalty payment through 2001 and most favored licensee treatment from 2002 through 2006.

In April 2006, Nokia and IDT resolved their contract dispute over the patent license terms originally agreed to in 1999 and the impact on Nokia of IDT’s licenses with Ericsson and Sony-Ericsson. The agreed settlement terms resolved the legal disputes related to 2G products, with Nokia obtaining a fully paid-up, perpetual, irrevocable, worldwide license to all of IDT’s current patent portfolio, and any patents IDT may later acquire, for purposes of making or selling 2G products, including handsets and infrastructure. The settlement terms also resolved disputes related to all our products up to the agreement date. The IDT settlement terms did not address any prospective 3G license terms, however, our sale of 3G products was fully released through the date of the settlement agreements.

Nokia and IDT currently have pending legal disputes in the United States and United Kingdom regarding IDT’s alleged 3G patents and certain Nokia patents declared essential to 3G. In July 2005, we filed a case with the UK High Court, Patents Court, to challenge an assertion by IDT that its patents were essential to work the WCDMA Standard. After trial, only one patent out of the 29 challenged was found to be essential to the WCDMA Standard. We believe that we have access to that patent through another agreement. In August 2007, IDT filed a complaint against us in the U.S. International Trade Commission (“ITC”) alleging infringement of two declared essential WCDMA patents. In October 2007, the ITC announced that it was consolidating the IDT action against us with an action IDT had brought against Samsung. IDT then amended the complaint to add two additional declared essential WCDMA patents. The consolidated action therefore now includes four patents, also asserted against us in Delaware. Through its ITC action, IDT is seeking to exclude certain of our WCDMA handsets from importation and sale in the US. In this situation, IDT has committed itself to grant a license on fair, reasonable, and nondiscriminatory terms with regard to the patents in suit. The hearing on this case is scheduled to begin on April 21, 2008 with an initial determination currently scheduled for July 11, 2008 and a final determination currently scheduled for November 11, 2008.

We have also filed a motion in the Southern District of New York court to prevent IDT from proceeding with its claim in the ITC. We believe the patents at issue are also licensed to us as part of an R&D agreement signed in 1999. Although IDT disagrees, any license dispute under the R&D agreement is subject to resolution through arbitration. We are vigorously defending ourselves in these disputes.

Qualcomm

Our payment obligations under the old Qualcomm subscriber unit cross-license agreements with Qualcomm Incorporated (“Qualcomm”) expired on April 9, 2007. We are now in negotiations with Qualcomm about a new cross-license agreement with the intention of reaching a mutually acceptable agreement on a timely basis. Our intention is to negotiate a new cross-license agreement based on today’s business realities, including the current value of Qualcomm’s newer patent portfolio and Nokia’s IPR position in relevant technology standards. The wireless industry landscape has changed significantly since the terms of our previous agreement were set, and we believe that any new agreements must reflect the realities of today including the fact that we are discussing different patent assets than in the old agreements, as the early patents—CDMA fundamentals as referred to by Qualcomm—are fully paid-up by Nokia. Although we hope for an out of court resolution to the patent disputes we have with Qualcomm, we also recognize that we may have to prove the merits of our claims and the falsity of the claims of Qualcomm, through proof in courts on a patent-by-patent basis in the relevant countries.

Nokia and Qualcomm currently have pending legal disputes in the United States, Europe and China. In November 2005, Qualcomm and its wholly-owned subsidiary Snap Track, Inc. filed a patent infringement suit against Nokia Corporation and Nokia Inc. in the Federal District Court for the Southern District of California. The lawsuit currently involves five patents that Qualcomm apparently contends apply to the manufacture and sale of unidentified GSM products. Nokia and Qualcomm have since agreed to stay the case pending the final outcome of an ITC investigation filed by Qualcomm against Nokia. We are vigorously defending ourselves against these claims.

In May 2006, Qualcomm additionally filed a patent infringement lawsuit against Nokia in the United Kingdom. This lawsuit involved two European patents (United Kingdom) that Qualcomm apparently contended apply to the manufacture and sale of GPRS phones capable of operating in accordance with the GPRS and/or EDGE standards and not having a capability to operate with CDMA technology. On March 3, 2008, a United Kingdom High Court judge issued a ruling in favor of Nokia which determined that all of the asserted GSM patent claims of Qualcomm were invalid. This ruling is subject to potential appeals.

In June 2006, Qualcomm filed a complaint against Nokia in the ITC seeking an order forbidding the importation of our GSM handsets into the United States. The ITC instituted an investigation in July 2006. The trial was held in September 2007. On December 12, 2007, the Administrative Law Judge issued an initial determination finding all three patents not infringed, and finding one patent invalid. On February 27, 2008, the ITC decided not to review the Initial Determination of Judge Luckern issued on December 12, 2007. The decision means that the ITC investigation has now been terminated. This ruling is subject to potential appeals. A final determination is expected April 14, 2008.

In August 2006, Qualcomm filed a patent infringement lawsuit against Nokia in Germany. This lawsuit involves two European patents (DE) that Qualcomm apparently contends apply to the manufacture and sale of certain GPRS phones. Based on a request from Qualcomm to stay the proceedings, the court stayed the lawsuit on September 11, 2007 until further notice. The German Revocation Court will consider our claim that the two patents are invalid in April and June 2008.

In August 2006, Nokia initiated an action in Delaware Chancery Court seeking a declaration that Qualcomm had breached its contractual obligations concerning patents declared essential to ETSI, a standard setting organization, by seeking injunctions and exclusions notwithstanding Qualcomm’s voluntary and contractually binding commitments to license such patents on fair, reasonable and non-discriminatory terms, or FRAND. In April and June 2007, Qualcomm filed counterclaims seeking a declaration that, among other things, an agreement between the parties fulfilled and/or superseded any obligations it owed to ETSI or to Nokia as a result of its ETSI undertakings.

In April 2007, Qualcomm filed an arbitration demand with the American Arbitration Association (AAA) requesting a ruling that, among other things, our use of Qualcomm’s patents after April 9, 2007 constitutes an election by us to extend its license under the parties’ existing agreement. In July 2007, Qualcomm filed an amended demand for arbitration alleging that our institution of certain patent infringement proceedings against Qualcomm was a material breach of the license agreement between the parties. We are vigorously defending ourselves against these claims.

By consent order of the Delaware Chancery Court, dated February 22, 2008, the parties consolidated the AAA arbitration with the Delaware action. The parties are filing amended pleadings with the Court, the last of which is to be filed by March 28, 2008. The parties’ claims relate to their disputes concerning ETSI/FRAND and the subscriber unit license agreements. The court will be considering the parties’ claims in a phased evidentiary process. The trial based on the evidence which can be considered in the first phase is currently scheduled to begin on July 23, 2008. We continue to vigorously defend our rights in this action.

As part of the consent order, the parties agreed to a “stand down”—for the duration of the first phase of the Delaware action—of all patent infringement litigation where they will seek to stay all such litigation with the exception of the ITC action, and the UK action. The patent stand down shall not preclude reexaminations, nullity or invalidity actions or patent oppositions—so long as they are separate from any infringement proceeding. Nor shall the stand down preclude the parties’ right to pursue or initiate antitrust or competition claims.

In October 2006, Qualcomm filed a patent infringement lawsuit against Nokia in France. This lawsuit involves two European patents (France) that Qualcomm apparently contends apply to the manufacture and sale of certain GPRS phones. This case is covered by the stand down. In addition, in October 2006, Qualcomm filed a patent infringement lawsuit against Nokia in Italy. This lawsuit involves two European patents (Italy) that Qualcomm apparently contends apply to the manufacture and sale of certain GPRS phones. Our defense and counterclaims were filed in December 2006. This case is covered by the stand down.

In February 2007, Qualcomm filed a patent infringement lawsuit against Nokia in China, in the Beijing Higher People’s Court. This lawsuit involves one Chinese patent that Qualcomm apparently contends applies to the manufacture and sale of certain specified GSM handsets. This case is covered by the stand down. In March 2007, we petitioned the Chinese patent office to invalidate the patent. This case will proceed.

In February 2007, Qualcomm filed two patent infringement lawsuits against Nokia in China, in the No. 2 Intermediate People’s Court of Shanghai. These lawsuits involves two Chinese patents that Qualcomm apparently contends applies to the manufacture and sale of certain specified GSM handsets. These cases are covered by the stand down. In March 2007, Nokia petitioned the Chinese patent office to invalidate the patents. The case will proceed.

In March 2007, we filed separate complaints against Qualcomm in Germany and The Netherlands requesting a declaration that Qualcomm’s European patents are exhausted in respect of products placed on the EU market. In October 2007 and November 2007, the German and Dutch courts dismissed the claims on procedural grounds, respectively.

In addition, in April 2007, Qualcomm filed a patent infringement action against Nokia in the Eastern District of Texas. The lawsuit involves three patents that Qualcomm apparently contends apply to the manufacture and sale of unidentified GSM, GPRS and/or EDGE phones. Our defenses and counterclaims were filed in August 2007. This case is covered by the stand down. In August 2007, we filed reexamination requests with the US Patent and Trademark Office requesting the three patents be reexamined. The US Patent and Trademark office has ordered reexamination for the three patents.

In April 2007, Qualcomm filed a patent infringement action against Nokia in Wisconsin. The lawsuit involves two alleged speech codec related patents and Qualcomm has already voluntarily withdrawn one of these two patents from the case. Our defenses and counterclaims were filed in May 2007. The case was transferred to San Diego and has now been consolidated with a patent infringement case filed by Qualcomm against us in November 2005 described above in the Federal Court for the Southern District of California and the case is covered by the stand down. We are vigorously defending ourselves against these claims.

IPCom

In December 2006, we filed an action in Mannheim, Germany for a declaration that Robert Bosch GmbH was obligated to honor its agreement to grant Nokia a license on fair, reasonable and non-discriminatory terms. Bosch’s patent portfolio was sold to IPCom, and IPCom was joined to the action. Bosch and IPCom counterclaimed against us demanding payment of royalties. We are further seeking a declaration that Bosch is liable for damages caused by the sale of the portfolio in breach of the agreement. Argument was heard in December 2007 and judgment is expected in April 2008.

In December 2007, IPCom filed an action against Nokia in Mannheim, Germany claiming infringement of eight patents. Five of the eight patents are alleged to be essential to standards relating to multimedia messaging services. We are vigorously defending ourselves in these actions.