Funny how the date of expiration controls so much of our lives. Most of us -- at least those wanting to avoid nasty bacterial infections -- know not to touch a bottle of milk beyond its expiration date. Similar serious penalties await those who ignore expiration dates for everything from driver's licenses to lease agreements to perishable foods.
The intellectual property (IP) cross-license agreement for wireless giants Qualcomm
Off with the gloves
Actually, the gloves have already come off in this fight, and now there's full-blown kicking, spitting, and throwing of sand -- at least figuratively. Nokia and Qualcomm had already been slugging it out in court before the agreement expired. Most recently, in March Nokia filed suit to declare certain Qualcomm patents -- and therefore rights to royalties on them -- exhausted in Europe. Qualcomm answered a few weeks later with more lawsuits, arguing that it has found more wireless technology patents that Nokia is violating.
The patent lawsuits filed in the courts are only a piece of the entire IP rights picture. In October 2005, Nokia joined with Broadcom
Hitting below the belt
Qualcomm has already come out and estimated that lost royalty revenues from Nokia will affect earnings per share by $0.04 to $0.06 in its fourth quarter of 2007. Also significant is the $200 million Qualcomm expects to lay out in legal fees this year to address its wide array of legal issues.
In fact, there are so many legal entanglements facing Qualcomm now that there's a section of its website, titled "legal newsroom," that addresses all the cases and complaints in which it's involved.
Can't we all just get along?
Amid all the lawsuits, complaints, and tit-for-tat legal filings, it's difficult for investors to understand what implications this has for Qualcomm, Nokia, or the industry as a whole. So let's start with the root issue at hand, then look at the likely implications.
Ultimately, all the squabbles between Nokia and Qualcomm come down to this: Nokia disagrees about the value of Qualcomm's intellectual property. Because no one has found a standard, reliable method of valuing intellectual property, the two companies continue to spar over the relative contribution of each of them in various commercialized wireless technologies used today.
Both companies have been publicly arguing for completely different ways to properly value IP contributions to wireless technology. To determine relative value, Nokia prefers to count only what is termed "essential patents" -- and give them equal values -- needed for a wireless technology to operate. Qualcomm, on the other hand, argues for a less simplistic definition of patent value -- it believes individual patents (or inventions) have different values and that giving all essential patents equal weight is disingenuous. It also contends that the definition of an essential patent is arbitrary.
Qualcomm believes it should be paid royalties similar to what Nokia paid it in previous agreements. Nokia argues that it should be paying significantly less because it believes Qualcomm's IP contributions to technologies today are far less than they were in the past.
Things left unsaid
With most of their license agreement expired, Qualcomm and Nokia are now selling products in violation of each other's patented inventions. While Qualcomm has already projected the impact from missed royalty payments, Nokia hasn't publicly quantified the potential impact to its business, financial or otherwise.
Both companies have seen their stock prices momentarily drop at each turn of events over the past few years, but it's speculative to assess the long-term effect on either company's shares. Two things are certain, however -- the cost to both companies continues to climb, and the continuing uncertainty lingers with investors and in the industry.
The entire industry will become more involved as pressure likely will be stepped up against service providers such as Verizon Wireless
A Nokia/Qualcomm agreement, whenever it comes, would represent a positive turning point in the industry. Like the last major IP battle that Qualcomm was involved in with Ericsson in 1999, a settlement would likely make a significant number, if not all, of the other complaints and lawsuits go away.
Regardless of the specifics of a settlement, you can bet that both companies will claim victory.
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Fool contributor Dave Mock gets along with just about everyone, even without cross-license agreements. He owns shares of Qualcomm. Dave is the author of The Qualcomm Equation. The Fool has a disclosure policy.