South Korea's Deficit in Patent Royalty Payments

The Korean firm of C&S Patent has just sent around its regular newsletter which included a reference to a report by The Bank of Korea in which , the amount of royalties that S. Korean companies paid as fees to "access intellectual property rights" (presumably as royalties) in 2010 was a total of 5.8 billion dollars. This was apparently an increase of approximately 2 billion dollars as compared to the figure of 3.9 billion dollars paid out in 2009 and compares to 2.6 billion dollars paid as royalties in 2006.

C&S Patent report this in the context of a licensing payment of 550 million dollars from  Samsung Electronics to Kodak and 400 million dollars from LG Electronics for the use of a patent relating to mobile phone imaging technologies (reported here). This patent has now been held by the US International Trade Commission as being invalid (although Kodak announced that they are appealing the case).

Whatever the merits of the Kodak patent, the case shows the effect that royalty payments can have on the balance of payments of a country. It's no wonder that many national governments in Asia are encouraging their domestic companies to become more active in formulating standards and also to patent aspects of those standards.

NORTEL's LTE Patents

There's a lot more going on about Nortel's patents and a lot of confusion about whether they have been sold or not. The latest message is that they have not been sold. The author erroneously picked up the story from another source and has since been corrected. The auction that took place after NSN's initial approach. The approach from Nokia Siemens Networks was a stalking horse and under US bankruptcy law any other bidders must bid for the same "package of assets" - which did not include the patent rights, as NSN did not want them.

There's a report over on seeking alpha that Canadian company Research in Motion are arguing that the LTE patents are a national treasure and should be kept in Canadian hands.

There's more about stalking horse bidders in US Chapter Bankruptcy over here.

Nortel sells its patents to Ericsson

I am indebted to Joff Wild who reported on his IAM blog the recent developments on the Nortel asset sale. A few weeks back we discussed the bid by Nokia Siemens Networks on our post and significantly noted that the LTE patent rights were not included in the bid for USD 650 Million. Swedish company Ericsson pipped them with a massive USD 1.13 billion offer which included apparently the patent rights.

This apparently has upset Canadian company RIM and a number of politicians in Canada would like to see the bid overturned on grounds of national security. The Dow Jones Newswire reports, however, that the Canadian industry minister has yet to make a decision.

Our post quoted JPMorganChase who apparently had valued the patent rights at USD 2.9 billion - although a more realistic value might be USD 950 million. If we look at the USD 480 million difference in Ericsson and NSN bids and do a net present value analysis it does look as if those LTE patents would be worth around USD 950 million over their lifetime.

Ericsson have, of course, got their own portfolio of LTE patents. So they probably don't need any more to "swap" with other players. A cynic might suggest that the main reason for purchase would be to ensure that the IP rights remain in safe hands and don't get snapped up by a "troll" who wishes to extract cash from the telecommunications companies.

Qualcomm's woes

Followers of the telecommunications industry will know that US company Qualcomm tends to go it alone in setting royalty rates for patents considered essential to standards. Qualcomm considers the licensing fees set to be "Fair, Reasonable and Non-Discriminatory" (the mythical FRAND terms), but much of the industry is not so sure. Qualcomm holds a number of patents to the CDMA standard which are considered relevant to UMTS.

Qualcomm is currently facing an EU Commission investigation into its licensing practices, as reported here.

South Korea is in a particularly difficult position. It had not adopted the GSM standard and instead went for CDMA technology - on which Qualcomm owns the basic patents. The Wall Street Journal reports that the South Korean Fair Trade Agency has fined it USD 208 Million for anti-competitive practices. The agency alleges the Qualcomm abused its dominant position on the South Korean market place to offer discounts. Apparently Qualcomm holds 99.4% of the South Korean market for chips (as reported on a German website here)

Just to add to Qualcomm's woes, the Japanese Fair Trade Commission have apparently issued yesterday a negative decision - as reported by Qualcomm itself on its website.

More on Licensing in the Mobile Telecommunications Space

Eric Stasik of Avvika in Stockholm was kind enough to follow up my recent blog entry of licensing rates in the mobile telecommunications sector with the following additional comments:


On the matter of telecom royalty rates, even more interesting than the announcement by Nortel is the recent revelation by Qualcomm:

"Qualcomm COO, Len Lauer revealed on the occasion of a Merrill Lynch Global Technology Conference on June 03 that the company normally charges 4%-5 % as royalty for 3G shipments. The COO further revealed that the company had put royalty rate at 3.25 % when it was asked by European standards group to submit a rate for LTE."

(http://www.telecomtiger.com/Corporate_fullstory.aspx?storyid=6478&flag=1&passfrom=topstory&section=S162)

The European standards group referred to is NGMN presently under the auspices of ITU.

In addition to Nortel's 1% we have Ericsson (http://www.ericsson.com/technology/licensing_programs/index.shtml) who earlier announced an LTE royalty rate of 1,5%.

If you take 3,25% + 1% +1,5% you're already at 5,75%.

Now add to this Nokia + Motorola + InterDigital + another score (or more) of essential patent holders and you arrive at a number much larger than the "single digit royalty" which Ericsson and Nokia are talking about with regard to LTE. I would be surprised - indeed stunnned - if any ex ante exercise on 4G/LTE produced a number less than 20-25%. A "single digit royalty" is simply not credible.