A nine-figure legal bill tends to concentrate the mind. Just as the really expensive courtroom stage of the battle was about to kick off, Qualcomm and Nokia settled their dispute over intellectual property. All litigation, including Nokia’s complaint to the European Commission, has been dropped and a 15-year technology licensing deal agreed. Remarkably, it seems like a good result for both sides.
The actual terms of the agreement remain confidential, but can be roughly inferred from fourth quarter guidance given by Qualcomm. Assuming the chipmaker’s annual legal bill will fall by about $200m, it looks like Nokia will be paying a royalty to Qualcomm of 2-2.5 per cent of the price of each mobile phone it sells. That compares with the 4-5 per cent that Nokia paid under the agreement that expired in June 2007, and will still be paid by its peers. Nokia will also make an undisclosed upfront payment, and transfer some patents to Qualcomm, but resolution lifted the mobile phone group’s (bombed-out) stock by 4 per cent.
Qualcomm shares, meanwhile, soared by a fifth. That reflects the return of Nokia royalty payments to forecasts – worth about $700m next year. It also represents a significant validation of Qualcomm’s licensing model. Unlike most chipmakers, who incorporate the cost of intellectual property into the price of their chips, Qualcomm demands royalties due to ownership of fundamental building blocks of mobile phone technology. This has been largely accepted for phones using CDMA, but is more uncertain for the wireless technologies that will come after 3G. Agreeing payments across the range of technology standards in development with the largest handset maker underpins faith in that lucrative model. Furthermore, the patent transfer should prevent other handset makers being able to negotiate a similar discount. Only the lawyers will be upset by the outcome.