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China to Qualcomm: er, you and whose army?

3G IP royalty war heats up

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3GSM China's home-grown 3G standard TD-SCDMA is on course for a hard launch this year, and to prove it, its representative industry body the TD-SCDMA Forum showed off a range of handsets and vendors at 3GSM this week. The technology is being developed to 4G and beyond, and Chinese vendors are eyeing markets beyond Asia.

The Forum's press conference, while sparsely populated, turned out to be the most intriguing of the show - giving us a fine display of both China's technical confidence and tact. It was only after some goading that we got a sense of how the Chinese manufacturers see the IP battlefield.

TD-SCDMA is backed by the Chinese government with the intention of promoting domestic business and know-how, and skirting the royalties demanded by European vendors and Qualcomm.

And the IP issue is at center stage. 3G has a horribly complex series of royalty arrangements. Manufacturers of the Qualcomm flavor of 3G, cdma2000, pay Qualcomm a royalty; those who choose the W-CDMA flavor used in Japan and Europe pay both a Qualcomm royalty and make a contribution to a royalty pool. It's a sensitive subject, that has recently tipped over into private litigation between the parties, and an antitrust probe in Europe against Qualcomm. By sidestepping these royalties, TD-SCDMA will be much more attractive to potential vendors. But for now, it's a war of nerves between the TD-SCDMA and Qualcomm that's being conducted largely through the press.

Jing Wang, Secretary General of the TD-SCDMA Forum was pressed repeatedly on what Chinese vendors would do if they received an IP demand from Qualcomm. Would they nay or pay?

Wang replied, not unreasonably, that it was premature for vendors to take a position before they'd seen the IP claim, let alone the parking fee.

The subtext was that Chinese businesses don't simply pay up on demand - especially if that demand has been made through the press.

Wang urged all parties - and Qualcomm and Ericsson (the other major IP holder in CDMA) are members of the TD-SCDMA Forum - to sit down and thrash it out.

"Qualcomm has not spoken collectively to TD-SCDMA Forum," he said.

"There hasn't been any official IPR talk. My view is they have to talk, either individually or in another manner. And so do other companies."

Sounding the very model of diplomacy, Wang pointed out -

"The TD SCDMA vendors are ready to talk. The problem is now that to facilitate a conclusion, you have to make sure all your patent claims must be on the table and discussed. We want to have this discussion."

Then things got really interesting.

Put your IPR on the table

Recall that almost two years ago, China made a pledge not to give favor to TD-SCDMA and not to monkey around with private negotiations between foreign IP interests and its own manufacturers. (And to agree to GM food - but that's another story). But that turned out to be another diplomatic statement. Reports circulating this week suggest that China has instructed the W-CDMA trials to wind down, giving the green light for TD-SCDMA.

"It's not black and white," said Wang, singling out Qualcomm:

"Believe me they don't have that many [IPR claims]" he added, with not a little confidence. Datung has quite a few too, he said.

The inferences we're invited to take away are that the TD-SCDMA engineers have cunningly sidestepped the CDMA IP claims in their designs - and that Qualcomm doesn't really have that much to boast about. We'd very much like to hear Mr Viterbi's response to that one.

Of course as NTP has proved in its case against RIM, you only need one patent to stick and the legal system will ensure your claims for royalties are upheld.

But which international legal system is enforceable in China?

This is a rhetorical question. The issue of 3G IPR has featured prominently in previous WTO talks, and looks set to again. The difference being that this time, China is negotiating from a position of strength.

The Chinese are mindful that at the turn of the last century, American domestic growth was helped by a successful combination of protectionism and IP "theft" - so what's sauce for the goose is also sauce for the gander.

Qualcomm and Ericsson hardly need to be reminded who invented the firecracker. ®

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