Seven vendors reach LTE royalty agreements, but Qualcomm absent from the list

Alcatel-Lucent, Ericsson, NEC, NextWave Wireless, Nokia, Nokia Siemens Networks and Sony Ericsson have all signed a pact agreeing to the fair cross-licensing of intellectual property they collectively own in building new Long Term Evolution equipment and standards. Qualcomm did not.

Qualcomm wasn’t the only major vendor missing. Motorola, which has been pushing its CDMA-to-LTE migration expertise, was not on the list; nor was Nortel Networks. Only two of the top five handset makers signed on. And with the exception of upstart chipset maker NextWave, not a single one of the silicon vendors participated in the agreement—no Broadcom, no Texas Instruments, no InterDigital, no Freescale. The agreement appears to be mainly a pact among the largest equipment makers and their handset affiliates not to gouge one another with onerous royalty demands when it comes to cross-licensing one another’s patents. So it’s not a surprise that Qualcomm isn’t part of the deal.

But Qualcomm’s absence from any wireless radio intellectual property deal stands out far more than any other company’s absence due to its aggressive policy of enforcing its patents on the industry as a whole. The seven vendors in the pact are likely to produce the bulk of the equipment and handsets for the new fourth-generation UMTS technology, but Qualcomm is likely to produce a good deal of the device-side chipsets, especially the dual-mode chipsets needed to switch between 3G networks and new 4G networks. Qualcomm’s prevalence in that market becomes even greater in light of the possibility of CDMA operators moving toward 4G. CDMA is Qualcomm’s home-grown radio standard and has a practical lockdown on intellectual property and chipset sales in the technology.

Qualcomm’s patent holdings in LTE and other orthogonal frequency division multiplexing access (OFDM) technologies are much less certain. Qualcomm acquired Flarion in 2005, adding its sizable OFDMA patent portfolio to OFDM work it had already been doing on its Forward Link Only (FLO) mobile TV technology. While no one has tracked just how extensive its holdings are, at least one company, Soma Networks, has licensed its OFDMA patents in developing its WiMAX kit.

“Qualcomm has said it has an OFDMA patent portfolio relevant to LTE,” said Yankee Group wireless enabling technologies analyst John Jackson. “Presumably it plans to exert it. I would have been highly surprised if I saw Qualcomm as part of this agreement.”

The intellectual property battles over 3G have led to numerous court and regulatory battles, pitting Qualcomm against other vendors not only over cross-licensing deals but the validity of their patents. A fight with Broadcom resulted in a US International Trade Commission ban on importing Qualcomm 3G chips into the US, which Qualcomm succeeded in watering down. But perhaps most significantly, Qualcomm and Nokia are going head-to-head over an expired cross-licensing deal regarding the royalty value of WCDMA technology in a phone. Whether similar intellectual property battles will break out between Qualcomm and the rest of the industry is uncertain, Jackson said, but it’s an expensive uncertainty.

“It’s a billion-dollar unknown,” Jackson said. “Because there is no formal body that enforces central patents, the value of your intellectual property is what you say it is.” How much of an impact Qualcomm has in LTE technology licensing will be determined by how aggressively and how successfully it enforces the patents it holds, Jackson said.

“You could have a happy harmonious outcome to all of this, but as long as Qualcomm remains an intellectual property-focused company with a world-beating chipset business, I can’t imagine that will be the outcome,” he said.

On the 4G front, however, Qualcomm may not be in the position of leverage that it stood on for 3G. WCDMA was built on the basic radio interface that Qualcomm developed internally 20 years ago. Analysts and vendors alike have said that the patents for OFDMA are much more dispersed than they were in the 3G and 2G standards, implying that no one company can exert enough patent pressure to gum up the works. In addition, critical elements of both the LTE and WiMAX standards use technology developed primarily by other companies. The multiple input-multiple output (MIMO) smart antenna technology used in both WiMAX and LTE is perhaps the best example.

Bell Labs made the first MIMO breakthroughs in the late the 1990s, demonstrating that the data could be sent over separate parallel streams in the same frequency, thus doubling the capacity of any given wireless channel. Since then Nortel has done a lot of the heavy lifting in developing the technology for radio access networks. While the antennas themselves won’t be part of any silicon solution Qualcomm ships, the patented algorithms that separate out the dual MIMO signals will be part of any chip’s firmware. That may give vendors like Nortel and Bell Labs’ owner, Alcatel-Lucent, significant patent leverage over Qualcomm or any other chipset vendor.

Ultimately the pact between the seven vendors may not have the impact it purports to contain. At its heart is an agreement to negotiate “fair, reasonable and non-discriminatory” (FRAND) LTE licensing terms among one another. FRAND, however, has been one of the central disputes in the Qualcomm-Nokia spat. Nokia claims Qualcomm’s terms are unfair and unreasonable, while Qualcomm claims the opposite.

The agreement lays down some specifics, stating that aggregate royalties for LTE handsets cannot exceed single-digit percentages of the overall cost of the device and that royalties for LTE modem-embedded laptops cannot exceed single-digit dollar amounts.

“I can understand a single-digit percentage amount on a handset because a handset is cheap,” said Current Analysis infrastructure analyst Peter Jarich. “And I can understand a single-digit dollar amount on royalties for laptops because laptops are expensive. But what do you charge for the iPhone? How much of the iPhone is a phone versus how much is a computing device?”