Qualcomm Inc. begs to be noticed - Cleveland 19 News Cleveland, OH

Qualcomm Inc. begs to be noticed

SAN DIEGO (AP) - Since taking the helm at Qualcomm Inc. in 2005, Paul Jacobs has tried to persuade anyone who would listen that his company is not run by greedy lawyers bent on squeezing customers for money it doesn't deserve.

Even if he's right, there's little doubt that lawyers are pretty crucial at Qualcomm these days.

The wireless communications pioneer is under legal assault, with Nokia Corp. and other major equipment makers charging that Qualcomm levies unjust, inflated licensing fees to use its patented technologies in their products. Regulators in Europe, South Korea and Japan are probing Qualcomm's business practices as the company trades lawsuits with rivals across the U.S. and Europe.

Jacobs, 44, who succeeded his father, Qualcomm co-founder Irwin Jacobs, as chief executive, has responded by assailing his critics.

His message in his many visits to carriers, regulators and investors: Nokia and its allies just want to protect their turf by dismantling Qualcomm's business model, which, he argues, gives smaller companies access to the latest technology.

"It's the old guard trying to defend their position," said Jacobs, an engineer who appears more comfortable talking gadgets and gizmos than lawsuits and regulatory probes.

Qualcomm designs and manufactures digital processors that are central to cell phones and cellular networks. The company - which has 1,900 patents in the U.S. and has applied for 3,200 more - is best known for developing a wireless standard called code division multiple access, or CDMA.

Critics say Qualcomm overstates the importance of its inventions and takes an inordinate cut on finished products - costs that are passed on to consumers. Qualcomm does not disclose terms of deals with its 135 licensees but recently said its standard fee is under 5 percent of a handset's wholesale price. That amounts to roughly $10 a phone.

"They're the company you love to hate," said Will Strauss of Forward Concepts Co. a Tempe, Ariz., technology research firm. "Even their best customers hate their guts."

The stakes are huge for Qualcomm and the outcome may influence how aggressively others try to mimic its success at selling technology rights. Licensing accounted for a third of Qualcomm's $7.53 billion in revenue last year and a whopping three-fourths of its pretax profits of $3.16 billion - numbers that provoke envy, admiration and scorn from rivals. Its chip-making business accounts for most of the remaining revenue and profit.

"They really broke the mold regarding how things are done with royalties," said Dave Mock, author of "The Qualcomm Equation," a company history. "Other companies do it, but no one does it quite like Qualcomm."

Uncertainty about the licensing business has weighed on Qualcomm's stock, which is down about 25 percent since May. A key question lurking behind all the legal battles: Will Qualcomm renew its licensing pact with Nokia, the world's largest handset maker, before it expires April 9, and on what terms?

Qualcomm reiterated Wednesday that it doesn't expect a deal by April and has shaved its 2007 profit estimate to reflect its expectation that Nokia will halt royalty payments when the agreement expires. Qualcomm vows to seek court orders to block Nokia from selling "unlicensed" products if no deal is reached. In a lawsuit filed last year in federal court, Nokia asked that Qualcomm be prevented from seeking such an injunction.

Irwin Jacobs and six others founded Qualcomm in 1985, setting up shop in a San Diego strip mall as a developer of equipment to track trucking fleets.

They soon turned to developing CDMA, building on the work of Austrian actress Hedy Lamarr, who stirred controversy by appearing nude in a 1933 film and later became a radio-communications inventor who assisted the U.S. in World War II.

CDMA is now used in about 20 percent of the world's mobile phones through carriers such as Verizon Wireless and Sprint Nextel Corp. in the U.S. and throughout much of Asia.

Qualcomm largely overlooked a rival standard known as global system for mobile communication, or GSM, which is ubiquitous in Europe and still accounts for about two-thirds of all mobile phones.

The current legal showdown is largely about rights to wideband CDMA, or WCDMA, a standard for speedier Internet downloads that GSM-based carriers such as Cingular Wireless and T-Mobile in the U.S. are using to upgrade their networks.

Qualcomm insists it should be paid the same royalty rate for WCDMA as CDMA, drawing protests from equipment makers who say that stance ignores engineering contributions from companies including Nokia, LM Ericsson and Motorola Inc. If Qualcomm prevails, it can collect big licensing fees on the rapidly expanding pool of WCDMA carriers.

"They are attempting to project yesterday's business model into tomorrow, and it simply doesn't fit," Nokia spokesman William Plummer said.

Qualcomm won an early legal battle in September, when a New Jersey federal judge dismissed an antitrust complaint by Broadcom Corp., a rival chipmaker that alleged, among other things, that Qualcomm failed to license WCDMA technology on "fair, reasonable and non-discriminatory terms." Broadcom, based in Irvine, Calif., is appealing.

Late Friday, Broadcom said a federal jury in San Diego ruled it did not infringe on two Qualcomm patents for video compression technology, which is used in DVD players, digital televisions and iPod music players.

In October 2005, Nokia and five other firms complained to the European Commission about Qualcomm. Regulators in South Korea and Japan soon began asking questions. European and Japanese authorities have not commented, and South Korea's antitrust authority has said only that it is investigating Qualcomm.

Steve Altman, Qualcomm's president, said Nokia pays the same amount for WCDMA and CDMA under its 2001 licensing agreement that expires in April. He thought Qualcomm was making headway when he visited Nokia headquarters in Espoo, Finland, in 2005.

"By no means did I leave thinking we had a deal, but I certainly was feeling like there was a path that the two sides could work down," Altman said.

But as Nokia and others complained to regulatory authorities, Qualcomm was on the defensive. Jacobs and Altman visited carriers around the world - from Vodafone Group PLC of the U.K. to Cingular in the U.S.

"We wanted to defend our business model," said Altman, a lawyer who joined Qualcomm in 1989.

Altman, 45, characterizes the reception from carriers as "really good," and Jacobs calls the meetings a "silver lining" in the legal assault. Both Cingular and Vodafone declined to comment.

Signs are mounting that the disputes are taking a financial toll. Qualcomm estimated Wednesday that its legal costs would double this year to $200 million.

Amid the regulatory probes and lawsuits, Qualcomm's critics are also making the rounds with government officials and investors.

Nokia touts a 2005 study it funded in which two U.S. research scientists examined nearly 8,000 patents and downplayed Qualcomm's contributions to WCDMA, saying the company held only 38 percent of the standard's 732 "essential" patents.

Qualcomm shot back with "white papers" that are prominently displayed on its Web site's home page. One rebuts the Nokia-funded study, another promotes its contributions to WCDMA, and one defends its business model.

"From a public-relations point of view, they've succeeded in positioning us as just a licensing company that files lawsuits," Altman said.

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