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For Qualcomm The Chickens Are Finally Coming Home To Roost

Summary

Qualcomm's disregard of other companies' patents undermines its own interests.

The U.S. patent system has been under attack over the past decade. SCOTUS decisions eliminated any real property rights that a patent holder once held (no injunctions). This combined with big Silicon Valley companies’ successful lobbying of the Obama administration to make patent enforcement too lengthy, expensive, and unpredictable (the America Invents Act) has resulted in the United States dropping from the number one location in protecting patented innovations to number 10. We now rank behind Singapore and Italy!

The STRONGER patent act, recently created as a bi-partisan bill in Congress says it best:

The STRONGER Patents Act of 2017

Support Technology & Research for Our Nations Growth and Economic Resilience

➢ A number of changes over the past decade have weakened the U.S. patent system, from Supreme Court decisions to the unintended consequences of new post-grant administrative proceedings at the U.S. Patent and Trademark Office.

The result is that the U.S. patent system is now ranked tenth worldwide by the U.S. Chamber of Commerce. Until this year, it was always ranked first.

➢ These changes risk undermining investor confidence in technology-intensive small businesses, ceding the U.S.’s historic edge in innovation to Europe or China.

➢ The impact of undermining the patent system will be significant—patent-intensive industries create high-paying jobs that have a wage premium of 74%, and the U.S. currently has a trade surplus of about $85 billion due to the licensing of IP rights.

➢ Strong patents are also vital to technology-intensive startups. Research shows that if a startup receives a patent, its chance of securing venture capital increases over 50% and it is likely to have better growth in employment and sales.

Of all the companies that should want a fair and balanced patent system, Qualcomm is at the top of the list. Qualcomm derives 70% of its profits from patent licensing. It is also the world’s largest NPE (non-practicing entity) for many of the patents it licenses. However, Qualcomm’s arrogance in flouting the patent system could be its undoing.

I am a long-time shareholder in publicly traded ParkerVision, Inc., which has had an on-going battle with Qualcomm’s unauthorized use of ParkerVision’s patents since 2011. Qualcomm has tried every litigation trick in the book in a quest to not pay ParkerVision. In spite of the current     negative environment towards patent holders, ParkerVision has stayed the course in enforcing its patent rights against Qualcomm.

In June 2014, Qualcomm convinced a federal judge to overturn the 9th largest jury verdict against in patent history at the time, which it lost at trial. In that case, it told the Appellate Court that it does not use ParkerVision’s technology by misconstruing testimony and not being truthful about their own documents. It also got a short-seller to file patent challenges against ParkerVision that Qualcomm themselves were barred from filing, held back discovery materials until late in the case, and then convinced an ITC judge the materials were too late to be used in trial. The list goes on and on. But while ParkerVision perseveres, is it really in Qualcomm’s best interest to continue playing this game?

Apparently, Apple believes it is, as it is is now on a mission to use the same tactics against Qualcomm. Now that the U.S. patent system has been eroded to number 10 in the world, and “efficient infringement” has become business as usual, Apple doesn’t have much to worry about. A lack of injunctions for patent holders combined with years and years of unpredictable litigation have led Apple to conclude that it doesn’t have to pay Qualcomm the billions in license fees in the future that it has paid in the past. Why should the country’s most profitable company, over $45 billion in profits last year, bother to pay for using someone else’s patents? And Apple can do to Qualcomm what Qualcomm has been doing to ParkerVision. 

I believe that ultimately Qualcomm and Apple will find a resolution. What is at stake for Qualcomm is how the resolution will affect its value. Apple has been paying a percentage of its entire phone ASP to Qualcomm as a royalty. If that royalty going forward is based only on the value of the Qualcomm chip then Qualcomm’s royalties could fall off a cliff and along with its market value. However this is resolved, I do not believe it will be possible for Qualcomm to argue that it is acceptable to not pay other companies for their patents (ParkerVision) while arguing that Apple must pay Qualcomm for using its patents. I further believe it would be in Qualcomm’s best interest to make peace with ParkerVision and use a reasonable business relationship with ParkerVision as an example of what good citizens that respect patents do.

It would also be in Apple’s best interest to do the same. ParkerVision’s trial win against Qualcomm resulted in a jury award that was a small single digit percentage of what Qualcomm sells its chip for. Apple would do well to form a similar license with ParkerVision and use that in court to show what Qualcomm should get as a royalty, which would reduce Apple’s royalties to Qualcomm by an order of magnitude.

Although ParkerVision has been abused by patent reform, a negative environment for patent holders, litigation tricks, and all that has resulted, I am encouraged that ParkerVision has not given up on its aspirations to create a successful international licensing business. It took Interdigital a long time to become the successful licensing business that it is today. I believe that ParkerVision (now in its 6th, going on 7th year) will ultimately get there as well.

Disclosure: I am/we are long PRKR.