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Tuesday, January 17, 2012

Qualcomm's perspective on patent wars

At times, reading annual reports is like hunting for a needle in a haystack. I experienced this while reading FY11 10K(annual report) of the CDMA technology owner Qualcomm(http://sec.gov/Archives/edgar/data/804328/000123445211000360/qcom10-k2011.htm). While most of the risk factors were boilerplate, one particular risk factor made interesting reading while QCOM complained that some of its customers were resorting to measures to avoid paying fair royalties. While the strategic use of patents has been detailed in the popular press(patent wars, patent bubble, patent trolls etc), few companies have been so forthright in their financial reports, and hence it warrants a read. Also, while patent challenges are the most common tool reported in the media, there are other ways to finesse patent challenges by using competition law, standard setting, contractual challenges, open source etc to achieve the same end. That is precisely what Strategic Management of Intellectual Property Rights(SMIPR) aims to achieve, and as such these strategies are a classic case. Below are relevant extracts of the risk factor(emphasis supplied by me).  Keep in mind that QCOM is not objective, but it does reflect the rights owner's perspective.
A small number of companies, in the past, have initiated various strategies in an attempt to renegotiate, mitigate and/or eliminate their need to pay royalties to us for the use of our intellectual property in order to negatively affect our business model and that of our other licensees. These strategies have included
(i) litigation, often alleging infringement of patents held by such companies, patent misuse, patent exhaustion and patent and license unenforceability, or some form of unfair competition,
(ii) taking positions contrary to our understanding of their contracts with us
(iii) appeals to governmental authorities
(iv) collective action, including working with wireless operators, standards bodies, other like-minded companies and other organizations, on both formal and informal bases, to adopt intellectual property policies and practices that could have the effect of limiting returns on intellectual property innovations and
(v) lobbying with governmental regulators and elected officials ..seeking the imposition of some form of compulsory licensing and/or to weaken a patent holder’s ability to enforce its rights or obtain a fair return for such rights.

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