Tech Untangled

In the short history of Vonage, 2007 is the year when Vonage ended up losing four patent suits, and in each case, having to pay huge sums of money. Vonage has pay AT&T $39 million, Sprint Nextel (S) $80 million, and Verizon Communications (VZ) $120 million to settle patent infringement lawsuits.

However, Vonage’s patent dispute with Nortel Networks has a less-bitter ending for Vonage - the settlement allows for cross-licensing of each companies’ patents, but does not involve any payments by either company. These patents are related to making emergency calls and dialing 411. Vonage was dragged into this legal battle with Nortel when it acquired three patents from Digital Packet Licensing (DPL) in 2006. DPL had filed a patent infringement case against Nortel in 2004 alleging violation of those three patents, so Vonage continued with the lawsuit. Nortel countersued, claiming that Vonage violated 13 of Nortel’s patents, and asked that Vonage be kept from using the technology. The settlement is subject to final documentation.

Om thinks that Vonage’s problem is playing the cheap voice game, but Vonage’s primary risk is not cost management (OK marketing/advertising costs has always been an issue), but that Vonage has no Intellectual Property protection. So far mainly the service providers have filed patent infringement lawsuits, but there are many equipment vendors and with many VoIP patents (much like Nortel) who could go after Vonage. Vonage still has many challenges ahead of it, but this settlement gives it yet another breather.

Verizon Wireless has confirmed plans to use Long Term Evolution (LTE) technology as its 4th Generation (4G) technology. Today, Verizon Wireless uses CDMA2000 technology and most of the rest of the world (including Verizon Wireless’ European half-parent Vodafone Group Plc.) uses W-CDMA (also called UMTS) for 3G services. These two technologies are similar but are not compatible.

With this move, Verizon Wireless will have a cellular technology compatibility with Vodafone, thus facilitating better operational synergies for the two companies as well as making it much easier and cheaper for subscribers that travel Internationally between the US, where Verizon Wireless operates, and Vodafones coverage areas in Europe and Asia.

Also, this move could be a blow to Qualcomm, the developer of the CDMA2000 technology, because Qualcomm has a very strong position in CDMA2000 as the primary (only?) chip vendor and holder of the majority of Intellectual Property but has a much less Intellectual Property and marketshare as a potential chip vendor in LTE.

Qualcomm has been working on a rival next generation technology known as Ultra Mobile Broadband, but 3GPP, one of the main standards bodies developing 3rd and 4th Generation technologies, recently selected LTE as its 4G migration path. According to the CDG, there are 400 million CDMA2000 and 21 million CDMAOne (IS-95) subscribers worldwide. Verizon Wireless currently has 64 million subs (mostly CDMA2000) or about 15% of the worldwide base. Losing 15% of the market in the future is significant but even more significant because it may compel other wireless operators to ditch the CDMA2000 4G migration path in favor of LTE. This move also could be a blow to WiMax, a rival 3G technology supported by Sprint Nextel that was recently designated as a 3G technology.

The Verizon Wireless and Vodafone will begin testing LTE technology in 2008 with equipment suppliers Alcatel-Lucent, Ericsson, Motorola Inc., Nokia- Siemens, and Nortel Networks.

It is estimated that LTE would be commercially available in 2010 or 2011 and Verizon Wireless and Vodafone may have a common platform by around 2015 (Note: Telecom doesn’t move that fast!)

Qualcomm got a breather now, and so did a number of its key customers. The Ban on the importation of new 3G handsets containing Qualcomm chips is stayed while an appeals court reviews the merits of the case. The United States International Trade Commission had imposed the ban in June as a remedy to its finding that Qualcomm infringed on a Broadcom patent for power management. While this may be buying time for Qualcomm, it is buying a very important time, because wireless service providers such as Sprint Nextel and Verizon Wireless typically sell a significant portion of handsets in the holiday season starting October.

Besides Qualcomm, handset manufacturers such as Samsung, Motorola, Sanyo, Kyocera, and LG will benefit by being able to sell 3G new handsets (the ban was limited to new models of 3G handsets). Cellular carriers such as Sprint Nextel and to a lesser extent AT&T will benefit. Verizon Wireless Struck a Deal with Broadcom by paying $6 to Broadcom per handset to avoid the ban, so it’s not bound by the ban on importation of 3G handsets (or the stay of the ban). Sprint Nextel was also relying on handsets that had a “workaround” from Qualcomm that avoided using Broadcom’s patent, although Broadcom was expected to challenge the workaround in court.

The Court of Appeals for the Federal Circuit believes that the ban would unjustly harm  Qualcomm customers. The stay of the ban is a major psychological boost after the company’s recent setbacks on the patent infringement case with Broadcom. This will give Qualcomm a much needed breather before seeking a complete reversal of the original infringement finding and the ban.

Diebold and NCR Corporation, leading players in the automated teller machines market, are developing technologies to enable cell phones or PDA’s/Smartphones to transact with an ATM. NCR has been developing technology for linking hand-held communications devices with ATMs since 2001. NCR already uses such technology in Denmark and Singapore.

Over the past 18 months, Diebold has won five U.S. patents for applications that enable mobile devices to interact directly with bank ATMs. The patents involve allowing banking consumers to use their mobile devices to locate and get directions to the nearest ATM, order cash withdrawals remotely, generate electronic checks, transmit wireless payments, and generate various other transactions by linking to an ATM. Diebold claims the technology underlying these patents exceed current mobile banking practices, namely online transactions.

One patent allows mobile phones to interact directly with ATMs and bank systems for cash withdrawals, with protection against card-skimming or personal identification number surfing at ATMs. Another patent allows mobiles to work at checkouts or banks to pay payments via secure electronic checks. A third patent allows bank networks to receive wireless communications from mobile phones for account information. The fourth allows bank ATMs to communicate with mobile devices through a cellular network or other wireless methods. The fifth patent allows users to interact with ATMs through the wireless device’s display and keypad instead of the display and keypad on the ATM.

For one, those not comfortable with entering a PIN code in a public place (ATM) can use a mobile device to enter the PIN. Here’s how it works: First, the mobile device user would receive a one-time code, which would then be entered when arriving at a specified ATM. The user could insert an ATM card and the one-time code, and the ATM would then know to complete the transaction.

A study last year found that people in the United States conduct about 8 billion ATM transactions annually. The Dove 2006 ATM Deployer Study shows that ATMs dispense about $600 billion in cash each year. With close to 200 million handsets in use in the United States, it’s easy to see that there may be a significant overlap between ATM users and mobile phone users.

Diebold has estimated such applications will be widely available within three to five years. I doubt anything mainstream in terms of accessing ATMs from mobile phones will happen soon. But, look out for banks to start testing some of these services, mainly out of security concerns.

Qualcomm has lots of friends, but Nokia is not one of them. In fact, Nokia is almost an arch enemy; this club includes Texas Instruments (TI), who with Nokia, was trying to develop CDMA chips for Nokia phones (mostly), but this didn’t work out because Qualcomm apparently was charging too much to license its patents for TI. That was several years ago, and TI’s quietly gave up on developing CDMA chips.

Fast forward and there’s a new squabble between Nokia and Qualcomm. The licensing agreement that allows Nokia to use Qualcomm’s CDMA (Code Division Multiple Access) patents expired in April 2007, and the two are struggling to extend this agreement. Without licensing Qualcomm’s patents, Nokia cannot sell 3rd Generation (3G) phones or other handsets that use Qualcomm’s CDMA technology. Likewise, Qualcomm will also have to stop selling chips that rely on Nokia patents. So its in both parties interest to eventually work out an agreement. Apparently, Qualcomm CEO Paul Jacobs thinks a final deal with Nokia will take several years.

The biggest likely reason for the holdout is that Nokia wants to reduce the licensing fee it pays Qualcomm, especially since Nokia has inserted some of its intellectual property into 3G standards. While Nokia has a stronger hand than before, Qualcomm has the ultimate upper hand.

Now, Nokia is trying other means to tame the tiger called Qualcomm.

For one, Nokia and others have filed complaints with the European Commission late last year, charging Qualcomm with anti-competitive behavior, accusing Qualcomm of charging the same rate to license its patents for WCDMA as it does for CDMA2000 even though its contribution to WCDMA is much smaller.

Next, Nokia filed a complaint with the U.S. International Trade Commission alleging that Qualcomm’s products infringe on 5 Nokia patents that improve the performance and efficiency of cell phones, as well as enable lower manufacturing costs, smaller product size and increased battery life. Nokia is asking for a ban on Qualcomm chips in the United States. Interestingly, Qualcomm has filed its own patent-infringement charge against Nokia with the ITC, and the issue is scheduled to go to trial next month.

If Qualcomm gives into Nokia, Qualcomm’s other patent licensees such as Samsung Electronics and LG Electronics will likely push for cheaper licensing deals with Qualcomm !

In the least, this whole patent thing seems to be taking new twists and turns every month!

Earlier this week, Qualcomm’s General Counsel Lou Lupin resigned in the face of mounting legal battles related to Intellectual Property in 3rd Generation Wireless systems. Rightfully so, because Qualcomm has had several setbacks in its patent disputes with Broadcom and Lou was responsible for directing these battles. Moreover, for a company like Qualcomm that has been so successful so far and collected so much royalty from patents, Broadcom has to be a big thorn on its ego (I contend that any company as successful as Qualcomm has sufficient corporate big-ego and arrogance)

First, Qualcomm lost its patent dispute to Broadcom (Qualcomm is appealing). On top of it, Broadcom had the nerve to ask for $6 for each handset sold with a Qualcomm chip (See Broadcom gives Qualcomm a taste of its own medicine for some background).

Second, the U.S. International Trade Commission on June 7th banned the import of future models of 3G handsets with Qualcomm chips that infringes a Broadcom patent. Qualcomm’s pursuit of a stay of the import ban hasn’t materialized so far.

Third, the Presidential veto that Qualcomm was seeking was rejected (see Sticking it to Qualcomm).

Fourth, Verizon Wireless, Qualcomm’s biggest partner in the U.S., does U-turn and pays Broadcom to import EV-DO mobile devices. As part of the deal, Verizon also will drop its part in the effort to overturn the ruling.

Fifth, a federal judge in San Diego last week excoriated Qualcomm for “gross litigation misconduct” in another dispute with Broadcom, saying Qualcomm waived rights to enforce two patents on compressing video signals because it deliberately concealed them from an industry standard-setting group.

Sixth, a judge last Friday tentatively doubled Broadcom’s $19.64 million damages awarded against Qualcomm in May for the patent infringement.

And now, seventh, the head-honcho of Qualcomm’s patent battles has resigned (No need to feel too bad, he made $2.5 million in stock options on Fed-20-20007 and another $1 million in march-06)

In addition, Qualcomm is also involved in another legal dispute with Nokia, the world’s biggest mobile phone maker.

All this bad news, and there’s probably more to come, makes it more likely that Qualcomm will come down from its high throne and settle with Broadcom. Of course, it’ll be billed as a mutual agreement in the best interest of society!

Not surprisingly, the Bush administration has upheld the ban on importing new models of cell 3G phones that have chips from Qualcomm. The Department of Homeland Security review found insufficient justification for overturning the order on grounds that it would create problems for public safety agencies. I have to applaud the Bush Administration for doing something right!!

In June, the U.S. International Trade Commission banned imports of new mobile devices that carry chips from Qualcomm, as a result of patent dispute between Qualcomm and Broadcom where Qualcomm chips were found to infringe on several patents held by Broadcom, most notably on a patent on conserving battery power. This applies to chips for the high-speed EV-DO (cdma2000) and WCDMA (UMTS) wireless technologies. Qualcomm had appealed to the Bush administration on grounds that a ban on imports of new models of mobile phones would be harmful to national security.

This has to be another great turn of events for Broadcom who has been asking for $6 per phone to settle the dispute (turns out to be a big chunk of dough).

While Verizon Wireless can import new models of EV-DO phones per its paid agreement with Broadcom, Sprint, AT&T, U.S. Cellular, and Alltel cannot import new phones that are infringing. This is a very serious issue since a lot of (if not most) new models of EV-DO and UMTS phones are manufactured outside the United States by manufacturers such as Samsung, LG Electronics, and Motorola. AT&T has limited 3G or UMTS or HSDPA coverage, so it’s a smaller issue for the largest wireless operator in the U.S. than for Verizon Wireless or Sprint.

Qualcomm has, however, developed a software-based workaround that will allow importation of new handset models with EV-DO and UMTS technology, and Sprint is apparently using this method to maintain its stream of new handsets. But Verizon Wireless’s deal with Broadcom raises questions whether this workaround truly bypasses Broadcom’s patent. Olga Kharif of BusinessWeek has a good analysis of this.

Interestingly, Qualcomm is not giving up that easy. Big QC will ask the U.S. Court of Appeals for the Federal Circuit in Washington to reverse the ban and put it on hold while its appeal is considered. Another sign that QC itself doesn’t have much faith in the workaround.

The unending patent saga between Broadcom and Qualcomm takes yet another twist as Verizon Wireless has agreed to pay Broadcom $6 per handset, up to a maximum $40 million per quarter and a lifetime maximum of $200 million in order to be able to import EV-DO handsets into the USA.

Verizon Wireless had previously supported Qualcomm in seeking a reversal of the ban, arguing it would prevent the latest handsets from getting to U.S. consumers. Qualcomm is pursuing a stay of the import ban and if that doesn’t work, a Presidential veto. As part of the deal, Verizon also will drop this effort to overturn the ruling.

I did a quick back of the envelope calculation: at $6 per device, $40 million covers 6.6 million mobile phones. That’s 27 million mobile phones for the year. Verizon Wireless has about 60 million subscribers, and lets say that a typical subscriber changes phones every 2 years. Thus Verizon sells about 30 million mobile devices per year.

The move is a blow to Qualcomm, but it looks like a pretty even deal for both Verizon and Broadcom, with some upside protection for Verizon Wireless. The $200 million maximum should be covered in 5-6 quarters, long enough time for Qualcomm to develop a workaround.

The unending saga of Broadcom vs. Qualcomm took another twist when Broadcom offered to receive $6 for every handset sold with a Qualcomm chip that was found to infringe a patent for a battery- saving feature. Qualcomm summarily rejected the offer saying it would have to pay US$1.5 billion to US$2 billion over the three years remaining on the patent. Now, I’m no fan of Qualcomm (Although I have a lot of respect for QC) because Qualcomm extracts a huge bounty from its patent portfolio that covers a lot of 2G and 3G wireless technology. However, this time around Broadcom had the audacity ask for $6-per-phone, saying it amounted to around 2 percent to 2.5 percent of the price of a handset.

”a small fraction of the revenue generated for each such handset by the carriers”

This is where I disagree with Broadcom. At this rate, a cell phone would cost between US$240 and US$300. Baloney! A handset vendor can produce a low-cost GSM handset for as low as US$10, and I believe that 3G phones are around US$100.

What’s interesting are the barbs fired by each company in response:

” Broadcom is asking for a royalty rate for one patent greater than the rate we ask for our entire portfolio,” says Qualcomm spokesman Bill Davidson.

”The per-handset royalty we’re asking for is less than the royalty Qualcomm demanded from Broadcom ” during a lawsuit earlier this year over video-compression patents”, says Broadcom’s Bill Blanning.

This fight is bitter because the U.S. International Trade Commission on June 7th banned the import of future models of 3G handsets that infringes a Broadcom patent. This leaves handset vendors like Motorola, Samsung, and LG, and wireless operators like Sprint and Verizon out in the cold - so they are ganging up to put the ban on hold. Qualcomm is now seeking a presidential veto on the ban on importing anything with these chips.

I really hope that Qualcomm will have to pay a substantial amount to Broadcom for the patent infringement. Why? because this is exactly what Qualcomm does to others with its massive patent portfolio.

I hope QC and Broadcom can settle the dispute quickly without interrupting imports of future 3G handset models into the U.S. But mostly, I really hope that George Bush doesn’t get involved because he’ll mess this one up too (its also not important to national security or hugely beneficial to the public)! For Qualcomm, what goes around comes around!

Mandriva, the company formerly known as Mandrakesoft, that publishes the Mandriva GNU/Linux operating system says on a posting on the company blog by CEO François Bancilhon that there will be no cross-licensing pact with Microsoft. Mandriva has offices in the U.S., France, and Brazil and sells in more than 140 countries through dedicated channels and through the the company online store.

Novell, Xandros and Linspire have so far signed patent related deals with Microsoft, particularly after Microsoft claimed that Linux and other Free and Open Source Software (FOSS) violate 235 Microsoft patents. With this announcement Mandriva becomes the 3rd major Linux company, after Ubuntu and Red Hat, to reject a cross-licensing deal with Microsoft. In terms of Microsoft’s agreements with Linux providers, now it’s 3-3.

One big reason Red Hat, Ubuntu, and now Mandriva, has rejected patent licensing with Microsoft is that Microsoft has never identified the patents; Without evidence of infringement, infringers (and even criminals) are ‘Innocent till Proven Guilty’. To Quote:

So it seems like a thinly veiled attempt to send a signal to the FOSS community to line up and drop their pants to Microsoft, or rather to find out the reaction from the open source community (including large enterprises that use both Microsoft and Linux computers).

Mandriva, on the other hand, has even better reasons not to strike a deal with the arch-enemy. Mandriva’s biggest market is in the Europe, and the European Patent Convention of 1973 doesn’t recognize software patents. It’s unlikely that Microsoft will risk a patent infringement claim in Europe.

Is Mandriva, standing up to Microsoft, or is this a good publicity ploy?