November 14, 2005
Another Fine Kettle of Fish - Qualcomm vs Broadcom
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Jack Horgan - Contributing Editor

by Jack Horgan - Contributing Editor
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The companies stated that Qualcomm is violating EU competition law and failing to meet the commitments Qualcomm made to international standard bodies around the world that it would license its technology on fair, reasonable and non-discriminatory terms. Absent these commitments, the WCDMA 3G standard would not have been adopted. The companies said that Qualcomm is infringing these rules by:
1. trying to exclude competing manufacturers of chipsets for mobile phones from the market and preventing others from entering. To this end, Qualcomm has committed a number of abuses, ranging from the refusal to license essential patents to potential chipset competitors on fair, reasonable and non-discriminatory terms to offering lower royalty rates to handset customers who buy chipsets exclusively from Qualcomm.

2. charging royalties for its WCDMA essential patents that are excessive and disproportionate; in particular by imposing the same royalty rate on WCDMA 3G handsets as it does for CDMA2000 3G handsets despite the fact that Qualcomm has contributed far less technology to the WCDMA 3G standard than it has to the CDMA2000 standard.
Qualcomm responded that the allegations are factually inaccurate and legally meritless. They point to the large number of licenses that Qualcomm has granted to a broad range of companies including 5 of the 6 claimants as evidence for their position.

On November 7 Qualcomm filed suit against Nokia for infringement of eleven Qualcomm patents and one patent owned by a subsidiary.

There are parallels with the Rambus case. In particular there are allegations that the standards making process may have been manipulated. In June 2002 the FTC charged Rambus with violating federal antitrust laws in particular by deceiving industry-wide standard-setting organization, namely the JEDEC Solid State Technology Association. According to the FTC's complaint, Rambus participated in JEDEC's SDRAM-related work for more than four years without ever making it known to JEDEC or its members that Rambus was actively working to develop, and did in fact possess, a patent and several pending patent applications that involved specific technologies proposed for, and ultimately adopted
in, the relevant standards. In February 2004 an FTC judge ruled that Complaint Counsel failed to prove the facts they alleged in the complaint and that the legal theories advanced by Compliant Counsel failed to demonstrate that a violation of the FTC Act had occurred.

As Qualcomm states in its latest 10K “Standards Development Organizations (SDO) do not have the enforcement authority or ability to protect intellectual property rights. Today, these organizations generally ask participating companies to declare whether they believe they hold patents essential for compliance with a particular standard or proposed standard and if so, whether they are willing to license such patents on terms and conditions that are fair, reasonable and free from unfair discrimination”. Such licenses are referred to as FRAND (fair, reasonable and non-discriminatory.

It is not clear what assurances or commitments, if any, Qualcomm may have given to various standards organizations. It is not clear if such assurances were made, that they were broken in any way by Qualcomm. It is not clear what recourse if any these SDOs or claimants may have, if indeed the commitments were broken. It is not clear what the potential fallout for the industry will be during and after the lengthy litigation process. Even the cloud of uncertainty may have considerable impact. Qualcomm's stock has risen 36% since the first of July. Broadcom's stock has risen 28% over the same time period. By comparison the NASDAQ stock index has risen a modest 7%.

Another parallelism with the Rambus case is that the companies making charges and allegations are licensees of the target company.

It should be pointed out that the Rambus case is largely well documented history while the Qualcomm case is still in its preliminary stages. No one knows how this will play out over time.

This is a high stakes game. According to EMC World Cellular Information Service, a researcher and publisher of wireless industry intelligence, there will be 2.2 billion mobile phone users or subscribers by the end of 2005 and there will be nearly 3.2 billion mobile subscribers by 2010.

Some Background on Cell Phone Technology

A cell phone exchanges signals with a tower or base station that is connected back to a central station. These base stations have a range of up to 6 miles. The phone carriers such as Sprint, Verizon, Cingular and T-Mobile have erected networks of these towers. In order to place a call, the cell phone must first connect to one of these towers. If a cell phone moves outside the range of a tower during a call, the connection must be handed off to another tower. If your carrier has no tower in a particular area then you can not make or receive a call or have your conversation handed off, unless your vendor has an arrangement with another carrier. You are said to be roaming and depending
on your service plan there may be additional, often steep, charges.

Governments have assigned certain frequencies for cellular transmission. European phones use the 900 and 1800 MHz bands for some of their older networks and the 2100 MHz bands for their new 3G networks. The Americas operate in the 850 and 1900 MHz bands. In the US the FCC licenses a band of spectrum to a carrier on a regional basis, sometimes leading to a mixture of frequencies for a particular carrier across the nation. Because of this situation cell phones are available that work on multiple banks, so called dual-mode and tri-mode phones.

Cell phones are designed and manufactured by a number of well know companies including Nokia, Motorola, Samsung, LG and Sony. However each phone has software and protocols that are specific to a carrier so that a “Sprint” phone can not become a “Verizon” phone. However, because of federal legislation, one can port the phone number across carriers.

When cells phones were first introduced, they basically provided mobility by untethering the phone from the wall jack. They supported basic voice communication. Over time capabilities have been added for text messaging, built in cameras and camcorders, video casting, satellite radio, web surfing, nationwide push-to-talk or walkie-talkie capability, GPS, E911 (Emergency 911), personalized ringtones and so forth. The technology inside the cell phone and in the supporting cellular networks can be said to have progress through multiple generations: 1G, 2G, 2.5G and currently 3G. First generation cell phones were analog. They lacked capacity and data transfer capability, consumed
considerable power and had inconsistent levels of service. The second generation was digital with new functionality for paging, e-mail, facsimile, and connection to computer networks at a lower price but still data services were limited to low transmission rates. The main 2G cellular technologies were CDMA, TDMA, PDC and GSM (see glossary below). The third generation, 3G, is targeted at ability to simultaneously carry both high speed data and voice traffic. Possible applications include ability to:
Download games, ring tones and other robust applications

View video files (streaming and download-and-playback)

Use push-to-chat and voice over Internet protocol (VoIP) services

Experience video conferencing and instant multimedia

Browse the web and check email
In May 2000 the ITU, International Telecommunications Union, adopted the 3G standard known as IMT-2000, which encompasses five terrestrial operating radio interfaces, three of them based on Qualcomm's CDMA intellectual property. There are two current commercial versions of CDMA2000, namely CDAM2000 1X and 1xEV-DO. Some carriers are deploying 2.5G mobile packet data technologies, such as GPRS and EDGE, as a bridging technology while they wait for 3G WCDMA devices to become more readily available and affordable.

The functionality evolution and convergence of devices has significant ramifications for cell phone developers and EDA vendors. One obvious problem is the length of time a cell phone can operate away from a charger in both active (typically 3 hours) and standby mode. A replacement cell phone battery costs about $70. Storage capacity requirements not only for software but also for content like photos and videos are increasing exponentially. Of course cost is always an issue in this consumer market and price competition is stiff. A cell phone retails for a few hundred dollars. Carriers typically offer around $150 dollars off the retail price in exchange
for a two year service commitment. In some cases this is sufficient to make a phone upgrade “free”. The same technologies have applicability for PDA and laptop computers, digital cameras and media players.

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-- Jack Horgan, Contributing Editor.


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