A scheme to cap royalty rates from the use of patented 3G technology has resulted in a multivendor agreement that aims to keep WCDMA equipment production costs down (see Royalties Deal on WCDMA ).

LM Ericsson (Nasdaq: ERICD), Nokia Corp. (NYSE: NOK), NTT DoCoMo Inc. (NYSE: DCM), and Siemens AG (NYSE: SI; Frankfurt: SIE) have reached a deal regarding the royalties paid for the use of essential Intellectual Property Rights. These essential patents need to be licensed if equipment that conforms to the agreed WCDMA standard is to be manufactured. The quartet has struck a deal whereby royalties are determined by the proportion of essential patents a company holds. This, the group hopes, will "enable the cumulative royalty rate for WCDMA to be at a modest single-digit level," they announced in a joint statement.

When Nokia was pushing for such an agreement earlier this year, the target was to cap intellectual property licensing costs at five per cent of the sale price of handsets and networking kit.

There is, of course, a notable absentee from the list of collaborators, namely Qualcomm Inc. (Nasdaq: QCOM), which shot down the idea of such an agreement earlier in the year (see Nokia Throws Its Cap Into the Ring). "Qualcomm will not agree to any such arbitrary cumulative limit on royalties," Christine Trimble, director of corporate public relations, said in May. This is no great surprise, as royalties are Qualcomm's lifeblood. Its licensing division accounted for 59 percent of pre-tax profit in the financial quarter that ended June 30.

The collaborators believe they can make a difference to costs -- and so encourage competition, lower prices, and the uptake by operators of WCDMA kit -- by themselves, and that others will come on board. Already, Japanese vendors Fujitsu Ltd. (KLS: FUJI.KL), Matsushita Communication Industrial Co. Ltd. (Panasonic), Mitsubishi Electric Corp., NEC Corp. (Nasdaq: NIPNY), and Sony Corp. -- all holders of "essential" WCDMA patents -- have "expressed their willingness to cooperate with such arrangements."

Any company can get involved, says Ericsson spokesman Peter Olofsson. "No one has been excluded from the negotiations," he says, adding that other patent holders are welcome. "Obviously Qualcomm is another company that holds such patents, and of course Qualcomm is important, but there are others too. You might want to build some WCDMA equipment that would require you to license some technology from Alcatel SA [NYSE: ALA; Paris: CGEP:PA], for example."

Even without Qualcomm, Olofsson says, the quartet holds the majority of the essential patents, with the largest single portfolio belonging to Ericsson: "Just between ourselves and Nokia, we hold more than 50 percent of the essential patents -- and then we add those from Siemens and DoCoMo, too." He says the patents relate to all sorts of technology that's found in handsets and network equipment and believes the agreement should benefit the industry as a whole. "We have done this, as there have been doubts as to whether issues over patents would be resolved. We are confident that the arrangements made will lead to a more competitive environment."

— Ray Le Maistre, European Editor, Unstrung
www.unstrung.com