Yesterday Qualcomm (NSDQ: QCOM) and Nokia (NYSE: NOK) finally signed another licensing pact, which saw Qualcomm’s share price leap. It should also be noted that Nokia’s share price rose (3 percent, according to Forbes). Qualcomm CEO Paul Jacobs said that the beginning of the trial was the catalyst of the deal — he refered to it as “external influence” in the Wall Street Journal. I had always assumed he meant legal enforcement rather than an ending of a game of chicken.
Special Discount: Nokia main point was not that it shouldn’t have to pay royalties but that it shouldn’t have to pay as much royalties because it had done a lot of research itself and had its own patents, so Qualcomm’s patents covered a smaller amount of the technology in question. It appears to have won this argument: “Analysts estimate the new deal with Nokia trims that royalty rate in half to 2 percent or lower. Charter (NSDQ: CHTR) Equity Research analyst Ed Snyder says the royalty rate is closer to 1 percent based on his discussions with Nokia about the impact of the new rate on margins” reports CNN Money. The important point for Qualcomm is it has a defence against other companies seeking similar royalty fees as Nokia — they don’t have Nokia’s patent portfolio. So it’s not a good deal for Qualcomm compared to the previous licensing agreement, but it is a good deal compared to what might have happened…and I’m sure neither company wanted to increase the estimated $200 million spent on legal costs.
The WSJ also notes that “the deal paves the way for companies to pay Qualcomm if they make 4G-only products, noted Nirav S. Parikh, a senior vice president of equities research at TCW Group Inc., a major holder of Qualcomm shares”. Qualcomm didn’t join the LTE licensing group for example, and this could make it easier for Qualcomm to get other companies to pay licensing fees for this technology.
EU Probe: Nokia withdrew its complaint against Qualcomm in Europe, but it’s unlikely to have any impact on the EU investigation. Aside from the other companies pushing the complaint (Broadcom, NEC, TI, Ericsson (NSDQ: ERIC), Matsushita) the EU authorities are independently investigating Qualcomm, and Jacobs indicated that “regulatory proceedings tend to take on their own momentum”.