Qualcomm Rivals File Suit on 3G Licensing Terms

A group of communications technology firms has filed complaints with the European Commission (EC), asking that agency to investigate whether Qualcomm engaged in anti-competitive practices in the licensing of its technology for so-called 3G mobile networks and handsets.

The companies that filed complaints include Broadcom and Texas Instruments from the United States, as well as international firms such as NEC, Ericsson, Panasonic Mobile Communications and Nokia.

The firms are asking the EC to order Qualcomm to change the terms under which it licenses its “essential patents” for 3G mobile technology. They say that Qualcomm is not living up to promises made to offer fair licensing terms, a promise the competitors say was necessary to allow Qualcomm’s WCDMA 3G standard to be adopted in many parts of the world for higher-speed mobile networks.

Qualcomm is accused of trying to exclude competing manufacturers of chipsets from entering the market and favoring customers who agree to buy only Qualcomm-loaded phones with lower licensing fees. The competitors also say that the company’s royalties for patent licenses are “excessive and disproportionate.”

Consumer Harmed?

“Major telecommunications equipment companies on three continents are standing up and saying that Qualcomm’s business practices are unfair, anticompetitive and ultimately illegal,” David A. Dull, Senior Vice President of Business Affairs and general counsel of Broadcom said in a statement.

The companies said the end result is harm to the consumer, as 3G networks are developing slower than they would otherwise if the licensing terms were more fair.

“Qualcomm’s anti-competitive licensing practices and excessive royalties are restricting innovation and the development of 3G mobile telephony to the detriment of consumer choice,” said Botaro Hirosaki, Senior Vice President of NEC Corporation.

The European Commission did not say what if any action it would take on the complaints, but if recent past history is any guide, the agency is likely to take the complaints seriously. The EC has been aggressive in tackling reports of anti-competitive behavior, as witnessed by its moves to force Microsoft to open its code and take actions to enhance competition among software firms.

Qualcomm did not immediately comment on the action. But investors seemed somewhat spooked, sending the company’s shares lower by 5 percent in Friday trading to US$40.99.

Private Suits Pending

Qualcomm has itself taken an aggressive stance to protecting its intellectual property in the past, and has more than not emerged victorious. It recently swapped private suits with Broadcom over several mobile chip-related issues, with Broadcom claiming that Qualcomm infringed on a number of technologies, including Bluetooth and WiFi, with some of its popular chipsets.

Analysts say the EC may be eager to protect firms from member states, such as Ericsson and Nokia. That risk is likely what has investors nervous, though most believe the company will emerge with its portfolio of patents and its licensing rights largely intact in the end.

Gartner analyst Paul Dittner said Qualcomm holds “an impressive portfolio of patents for cellular network technology” that puts some of its competitors at a disadvantage. Dittner said Qualcomm has attempted to build on its foundation of patents through recent acquisitions that further “strengthen its position in the development of next-generation wireless networks.”

Dittner and other analysts say a number of factors have led to the slower-than-expected rollout of 3G networks, especially in the U.S., but say that the next year to 18 months will see strong demand in smartphones and other devices for compatible chips.