Qualcomm Inc (QCOM)

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EU Demands Patent-Royalty Details in Qualcomm Probe, People Say

http://www.bloomberg.com/apps/news?pid=10000085&sid=a28dzhqHDZgk&refer=europe

Jan. 13 (Bloomberg) -- European regulators asked Qualcomm Inc. competitors for information on licensing conditions in an investigation into how the U.S. company charged for patents, said four people close to the probe.

The regulators, who want more data before pursuing the case, sent a letter late last month to users of Qualcomm's patents asking for details on royalties, said the people, who asked not to be identified because of confidentiality agreements. That's after six companies including Nokia Oyj and Ericsson AB on Oct. 28 accused Qualcomm of abusing its dominant position and charging ``excessive'' royalties.

``This is something that investors need to be aware of and to factor in as a risk,'' said Cody Acree, an analyst at Stifel Nicolaus Inc. in Baltimore who rates Qualcomm as a ``hold.''

The patents in the Qualcomm probe are for so-called third- generation wireless technology. The European Commission can take action against companies for abusing their market position, including fines of as much as 10 percent of sales. The regulator found that Microsoft Corp., the world's largest software company, abused its position in the personal-computer market and imposed a record 497 million-euro ($600 million) fine in March 2004.

The companies must respond to the commission's requests. The regulator will study the answers as well as Qualcomm's response, and decide whether to file charges, reach a settlement or drop the case. The process may take several years.

October Complaint

The complaint was filed with the commission, the 25-nation European Union's antitrust regulator in Brussels, on Oct. 26. The other complainants are Broadcom Corp., NEC Corp., Texas Instruments Inc. and a Matsushita Electric Industrial Co. unit.

A spokesman representing the complaining companies declined to comment or give his name. Commission spokesman Jonathan Todd and Qualcomm spokeswoman Christine Trimble also had no comment.

Ericsson spokesman Peter Olofsson said he had ``no information'' about the EU asking his company for details on licensing conditions. Nokia spokeswoman Arja Suominen declined to comment and Broadcom spokesman Bill Blanning couldn't immediately be reached. Texas Instruments press officers didn't return messages left on their answering machines.

In the works for almost a decade, third-generation telephones capable of making video calls and downloading music have been marketed across Europe for more than a year by companies including Vodafone Group Plc. The market for such phones, which use double or triple the number of chips found in current models, may be worth $40 billion by 2009, according to Boston-based researcher Yankee Group Research.

Licensing

Qualcomm, the world's No. 2 maker of mobile-telephone chips, is expected to generate 35 percent of its revenue and 65 percent of its profit from licensing its mobile-phone technology in 2006, Brian Modoff, an analyst at Deutsche Bank in San Francisco, said by phone. He rates the shares a ``buy.''

San Diego-based Qualcomm is most dominant in chips based on a technology called Code-Division, Multiple-Access, or CDMA, which is used in networks operated by Verizon Wireless and Sprint Nextel Corp., two of the three largest U.S. wireless carriers. Qualcomm also sells chips for the newer wideband code division multiple access, or WCDMA, technology that allows for higher speed Internet connections and video.

In the complaint, Qualcomm's competitors said the company overcharges for WCDMA royalties. They said Qualcomm, led by Chief Executive Officer Paul Jacobs, imposes the same royalty rate on WCDMA handsets as it does for CDMA handsets, even though it contributed less technology to the WCDMA standard.

In addition to licensing its technology, Qualcomm makes about 65 percent of its revenue and 35 percent of its profit by selling chips for mobile phones, Modoff said.

The rivals' second charge is that Qualcomm discriminates when selling chips to handset makers. The company offers lower royalty rates to handset customers who buy chips exclusively from Qualcomm, the competitors said.

The reported allegations are ``factually inaccurate and legally meritless,'' Qualcomm said in an Oct. 28 statement. Qualcomm pointed out that it's granted 130 licenses to companies, including five of the six claimants.



To contact the reporter on this story:
Matthew Newman in Brussels at [e-mail].
Last Updated: January 13, 2006 13:42 EST