Competition Rules and IPRs in the Telecom Sector电信部门的竞争规则和知识产权
Lack of Communication? Competition Rules and IPRs in the Telecom Sector
Michael Einhorn
（Know IP - The Stockholm Network’s Monthly IPR Journal
Volume 3: Issue 1. January 2007）
On December 12, 2006, the U.S. International Trade Commission (ITC) ruled that Qualcomm infringed claims on a Broadcom patent, upholding a ruling by an administrative law judge issued on October 10. The ITC is now is expected to issue a ruling regarding remedy by February 9, 2007.
The U.S. ruling follows in the wake of an EC lawsuit instituted in 2005 against Qualcomm by Broadcom, Nokia, Ericsson, Panasonic Mobile Communications, and Texas Instruments. The plaintiffs requested that the EC stop Qualcomm's anti-competitive conduct in the licensing of essential patents for mobile technology in third generation cell phones, which combine voice and data capability. Qualcomm here purportedly failed to meet prior commitments made to international standard bodies where the company agreed to license its technology on fair, reasonable and non-discriminatory terms.
The history of the matter is as follows: In 1989, Qualcomm publicly introduced the concept that a digital communication technique called CDMA could be commercially successful in wireless communication applications. Along with TDMA and GSM, CDMA became one of three voice-only digital wireless technologies that displaced first generation analogue techniques in prior use. Subsequently, the International Telecommunication Union (IRU) received several proposals for third generation wireless standards that would carry both data and voice traffic at faster speeds. These proposals include both CDMA- and TDMA-based technologies.
In May 2000, the ITU adopted the 3G standard known as IMT-2000, which encompasses five terrestrial operating modes. The three alternative CDMA - CDMA 2000 (also known as Multi- Carrier), W-CDMA (aka Direct Spread or UMTS), and Time Division Duplex (aka TDD or TD-SCDMA) are based on Qualcomm’s intellectual property. These three 3G CDMA wireless operating modes require separate implementations and are not interchangeable from a technological perspective. The U.S. and Asia have moved to implement CDMA-2000, where it is the dominant digital technology as well. By contrast, the European Community (where the dominant digital technology is GSM) has focused on the W-CDMA alternative.
As a lead developer of CDMA, Qualcomm now licenses to other companies in the CDMA operating modes a complete menu of 1000 patents, and has over 1700 patent applications pending in the U.S. For W-CDMA, licensees include Siemens, Nokia, Ericsson, Motorola, Lucent, Samsung, and LG Electronics. Qualcomm receives license fees, royalties (payable as a percentage of the selling price of the integrated circuits) and/or royalty-free cross-licenses that allow use of other technologies. In every case, phone manufacturers (such as Nokia and Ericsson) pay royalties for integrated circuits that use Qualcomm technology. Qualcomm committed to the ITU to license its essential patents for each operating mode on a fair and reasonable basis free from unfair discrimination.
In the plaintiffs’ eyes, Qualcomm’s licensing practices are anti-competitive for two reasons. First, the company refused to license essential patents to potential chipset competitors on fair, reasonable and non-discriminatory terms. The matter of price discrimination revolves around Qualcomm’s decision to offer lower royalty rates to handset customers who buy chipsets exclusively from Qualcomm. Second, the company charged royalties for its WCDMA essential patents that are excessive and disproportionate. The matter emerged as the company charges the same royalty rate on W- CDMA 3G handsets as it does for CDMA2000 3G handsets in which it has contributed more technology.
The above accusations assume that Qualcomm behaves in a predatory mode that seek to exploit is IP monopoly. However, that this is not necessarily the case. Some economic analysis has been missed here. If Qualcomm lowers the price of its licensed technology to buyers who agree to purchase its chipsets, Qualcomm could evidently expand its market share in the chipset market, in which it is a relatively small provider. However, the action does not increase the company’s market share of any part of the W-CDMA technology; each component technology in W- CDMA is part of a standard that must be deployed regardless of the chipset manufacturer. Qualcomm’s ambition here is to grab customers in a competitive market in which the company must fight for market share. Qualcomm has no realistic chance of monopolizing the affected chipset market.
As a second matter, Qualcomm’s licensing practices are presumably unfair because the company charges higher rates for each technology used in W-CDMA products than in CDMA-2000 products, where more Qualcomm technologies are used.
This view here does not take into account Qualcomm’s need to recover total R&D costs, which are incurred at moment prior to the commercialization of a technology (one should also note that the extent of use of the W-CDMA standard is lower since it is used only in Europe. Once these costs are sunk, the company must necessarily determine a way to recover or monetize total investments over the sales of all CDMA equipment and phones to which it contributes. Qualcomm’s overall revenues would be deficient if the company were to allow W- CDMA producers the right to ??cream skim’ their favored technologies without compensation for the wider R&D costs that actually made the whole portfolio possible in the first place.
Whatever the outcome may be, economically sensible competition analysis would suggest that this case ends quickly.
