ARTICLE
Clash of the Titans: IPR at a Crossroads
By Robert Syputa, Senior Analyst
Contact the author at robert@maravedis-bwa.com
A series of lawsuits, legal decisions, and international trade sanctions, that go the heart of their business model, has struck Qualcomm in recent months. This has lead to the announcement, Monday, August 13, 2007, of the resignation of EVP, Chief Counsel, Lou Lupin . Since Qualcomm has based a large portion of revenue is jeopardizes billions of dollars in licensing revenue. IPR royalties, legal and trade encumbrances are one of the key justifications presented by Intel and other advocates of WiMAX for shifting from current trends in mainstream wireless development. The argument has been that WiMAX will break the pattern of relatively high royalties and legal disputes experienced over the years for 2G-3G cellular and result in much lower royalties and IPR concerns.
Key to how the spate of arguments plays out is how major licensed operators will press for industry change as they will determine how revenues are spent from the top of the industry supply chain down. It does not matter what consumers think about IPR as long as they are willing to pay the cost of devices and service. It does not matter so much what equipment suppliers think; even if IPR disputes were to force most of them out of business or into the arms of major IPR stake holders and licensed suppliers of ICs so long as there are sufficient numbers of suppliers to satisfy market demands. Since the market for wireless equipment has a current surplus of suppliers, this is not the predominant concern of many network operators who are taking a role to lead IPR reforms. Most operators work with and purchase from a select few among the numerous suppliers of 3G and emerging WiMAX system vendors. It is reasonable to suggest that as long as their supply chain remains vibrant that the IPR situation can be weighed as part of the overall evaluation of industry risks. In other words, as a risk of doing business that can be evaluated along with other categories of risk factors including political and economic stability, currency valuations stability, and network deployment obsolescence life cycles.
Network operators are in a strong position to drive the structure under which IPR is licensed for WiMAX, LTE, UMB or major future wireless systems because they control the spectrum and customer revenue streams that fuel the multi-faceted supply chain. And because large investments and operating revenues can be directly impacted if IPR disputes rise to trade sanctions, operators have immediate interests in prescribing new methods to define risks and reduce litigation in advance of major deployments.
The redefining of methods for handling IPR is particularly critical at this time because the industry faces a shift in wireless technologies. From being based on CDMA/WCDMA, next generation wireless platforms will make a sea-change shift to OFDM/OFDMA plus MIMO-AAS and complimentary next generation wireless technologies. This shift is being made to enhance broadband data capabilities also fully embraces the convergence between major industries, each with their own fields of IPR. That brings in more overlapping sets of technology and diverse areas of IPR that include IT/networking, consumer device electronics, software, Internet and remote business methods, graphics display and compression, and new technologies that are developing to take advantage of the emerging wireless broadband platform including 'smart distributed wireless broadband networking'. We can look as near term as the recent legal battles between Broadcom and Qualcomm to find that patents pertaining to codecs, power saving IC technology, networking, and chip architecture for video processing in addition to wireless modem technology. In fact, the fight has escalated on both sides of legal battles: because so many patents are now involved, if one set of patents are found invalid or otherwise ruled out, Qualcomm and their sparing partners have recently been seen to enter additional patent infringement claims. Qualcomm reported to investment analysts that it has set aside $200 million US to fight near term legal battles. While this is nearly as much as the annual revenue for Alvarion, the highest revenue ‘WiMAX pure play’ company, this amounts to less than 10% of the reported net profits attributed to Qualcomm IPR licensing activity during 2006.
The wireless industry trade groups have attempted to set up patent pools and other means to mitigate the risks of IPR licensing but these efforts have run into obstacles. The wireless platform and industry has evolved so rapidly and necessarily compounds technology into devices that requires common wireless link and other technology that agreements have not been reached similar to more clearly defined areas such as graphics compression, system bus interfaces, and memory architectures. 3GPP, for example, has attempted to form the "3G Patent Platform" with the goals of "Implementation of the 3G Patent Platform scheme."1 Which include setting up of "a new profit service company governed by the members (essential patent holders and licensees)." This effort has been in the works for over three years but has bogged down as it has faced anti-trust and other challenges.
This statement, published several months ago, remains unresolved:
"As of today this NEW CO is not operational since it is waiting for the approval of the US/EC/Japanese competition law authorities in order to launch the above-described activities."
The industry has also seen the rise and abatement of several standards efforts for proposed next generation wireless, many that would have centered around WCDMA. As the industry has coalesced around OFDMA as the underlying link technology for 4G, new attempts are being made to gather participation needed to make an IPR dispute resolution mechanism stock:
- Members of the WiMAX Forum have pursued forming a pool of essential patents.
- The NGMN, Next Generation Mobile Networking alliance recently announced a new IPR regime agreement that includes industry heavyweights from among chip, networking, wireless systems, suppliers. These include suppliers often seen at odds over IPR: Intel, Qualcomm, Nokia, and Eriksson.
An initial element of both efforts is full up-front and transparent disclosure of the IPR companies claim is used in fashioning next generation wireless systems. The second element, which has been fleshed out by the NGMN regime but is still up in the air for the WiMAX specific effort, is establishment of a panel or independent third party company to evaluate submitted patents for essential nature to be included in the pool. From the point of being included in the pool, the independent company or association provides an aggregation of licensing royalties and terms which is made available to potential licensors. This does not go as far as previous efforts in assignment of value to individual patents or portfolios (companies) but instead seeks to establish a framework to determine costs, and make IPR more easily negotiated between companies. This is similar to Maravedis proposal for establishing a ‘defensive patent pool’ in that it leaves negotiation of IPR primarily in control of commercial and legal mechanisms but removes much of the motivation for ‘outliers’ to muddy up the scenario with nuisance lawsuits while lowering the bar for settlements.
This approach fits favorably within the evolving legal and regulatory climate that necessitates that standards based technology under FRAND agreements be openly disclosed and fairly licensed.
How do we know that these fresh efforts will result in any more than derailed previous attempts? Are the commercial differences sufficiently compensated so that these efforts can now move forward where heretofore others have stalled? The most important question is how well these efforts can gather participation among a large portion of IPR and companies so that risks are truly mitigated and final agreements are achieved. We will look further into this and surrounding issues in our next discussion.
A Kinder, Gentler Qualcomm? The Technology Revolutionary Adapts Its Strategy
04/30/2007, Al Boschulte and Victor Schnee, Probe Financial Associate Inc.
For more information you can contact the author. robert@maravedis-bwa.com
