Qualcomm Says It Won’t Follow New Wi-Fi Rules on Patents
Qualcomm Inc., a chipmaker that gets most of its profit from licensing technology, said it won’t follow new rules that lower the fees companies such as Apple Inc. must pay to use Wi-Fi in their devices.
The company is reconsidering its participation in the Institute of Electrical and Electronics Engineers, which sets the industry standard for Wi-Fi, after the group changed its patent policy Feb. 8, according to an e-mailed statement Wednesday.
The new policy, among other things, sets any royalties on the price of components such as a computer chip rather than the value of a device that uses Wi-Fi.
“Qualcomm will not make licensing commitments under the new policy,” according to the statement. The San Diego-based company said it would make “alternative licensing commitments” for future contributions to the standard. Qualcomm said it’s the biggest contributor to one of the newest versions of the Wi-Fi standard.
The policy has split the technology industry between those companies that helped develop some of the fundamental ways mobile devices work and companies selling devices that incorporate the standards. Companies that license Wi-Fi features -- like Apple, Hewlett Packard Co. and Microsoft Corp. -- supported the IEEE change because it lets them keep a larger share of profits from mobile devices they sell. Chipmakers Intel Corp. and Broadcom Corp., meanwhile, stand to benefit because it could undermine their chief competitor, Qualcomm.
‘Reasonable’ Terms
All smartphone and tablet manufacturers use essential technology agreed upon by the industry so devices can communicate with each other and send pictures or video. The inventors of technologies included in the standards pledge to license relevant patents on “reasonable” terms -- which standards groups never defined.
Under the new rules, companies contributing patents to industry standards agree to limit the types of demands that can be put on licensees, to not seek court orders to block sales by recalcitrant companies and to base fees on the price of the relevant component, not the whole price of the device.
Qualcomm will continue to submit information that could be considered for inclusion in the standard, but it will set its own royalty commitment similar to the old rules, said Fabian Gonell, chief lawyer of Qualcomm’s licensing business.
“IEEE has approved standards even when companies have refused to make precise commitments,” he said. “Since they say they’re not going to force anyone, we’re going to hold them to that.”
Global Investigations
Reaching a definition of “reasonable” became a key problem in the smartphone wars, where relative newcomers like Apple and Microsoft claimed older companies like Motorola Mobility Inc. demanded exorbitantly high rates in order to block competition. It prompted investigations by regulators in the U.S., Asia and Europe, and lawsuits including one in which Ericsson AB and Apple have sued each other over rates.
“This is certain companies have more of an implementer mindset and they want technology to be cheap and others are innovators with a different mindset and they want to be paid,” Gonell said.
Intel, which has spent more than $2 billion in Wi-Fi research and gets its money from sales of chips rather than patent licensing, said it’s an issue of “fundamental fairness.”
“If you make a commitment to contribute your patents to the standard, you’re supposed to license those patents on fair and reasonable terms,” said Chuck Mulloy, a spokesman for Santa Clara, California-based Intel. “We think the reform from the IEEE clarifies the rules of the road for that.”
Qualcomm’s licensing business, which is built on ownership of cellular phone system technology standards, was secured through legal wins over the last decade. Most phone makers pay Qualcomm fees based on the selling price of their devices.
That model overcame a possible threat in the largest phone market, China, where manufacturers were holding off on payments to Qualcomm while the government investigated.
Under the terms of an agreement announced this week, Qualcomm agreed to pay a $975 million fine and give discounts for phones made for China’s domestic market. Qualcomm can still base licensing fees on devices, not components.
The IEEE, the largest technical professional organization, said the policy change was “to provide greater clarity and predictability” for both patent holders and those who use the technology. While Wi-Fi is not the biggest money-maker for companies now, it’s becoming more important as a means of meeting increasing demand for sending data to mobile phones and as companies look to develop technology that combines it with cellular into a single standard being called 5G.