RealMoney Silver - IDCC's Claws Are Out in Broadcom Copycat Suit

IDCC's Claws Are Out in Broadcom Copycat Suit
By Tero Kuittinen
RealMoney.com Contributor
8/8/2007 12:03 PM EDT

Tuesday I wrote about how Broadcom's (BRCM) triumph in the patent fight against Qualcomm (QCOM) was likely to trigger a wave of copycat suits. A couple of hours later, we got the first one.

InterDigital (IDCC) is asking the International Trade Commission to ban import of Nokia (NOK) 3G phones unless Nokia agrees to license certain 3G patents of IDCC. Broadcom used the same venue to get an import ban slapped on phones using Qualcomm chips -- a move that yielded a $200 million payday from Verizon (VZ) alone and is likely to yield even larger payments from the rest of the U.S. operators.

IDCC is likely to be a tough opponent for Nokia. In 2006, Nokia paid more than $250 million to IDCC for certain 2G patents the companies had been negotiating over for years. The payoff validated IDCC's 2G patent claims and may imply that the 3G patents are valid as well. But Nokia is not a particularly charitable company when it comes to handing out licensing fees.

Until this week, IDCC probably felt anxious about how to press its case against Nokia on the 3G patent front. But Broadcom's triumph has changed the game.

Small companies now know they have a real chance of getting an ITC injunction on the import of phones using unlicensed patents. And the news about Verizon and one other U.S. operator agreeing to pay Broadcom directly opens up a delicious new cash stream: You can always hit on operators if the chip vendor or the phone manufacturer refuses to cough up.

IDCC is an old battle-ax when it comes to patent fights, so I don't think this suit is trivial or impulsive. The company in all likelihood decided to wait until the small chance of a presidential veto in the Broadcom case passed before it decided to pounce with a well-prepared suit.

This is a particularly awkward situation because of the existing tension in the AT&T (T) -Nokia relationship. Nokia used to be AT&T's favorite vendor back when Nokia's U.S. market share topped 30%. Now Nokia no longer manufactures phones for Verizon or Sprint (S) , and its U.S. market share has tumbled to 13%.

Yet even as Nokia's reliance on AT&T in America has grown, the relationship between the companies has cooled.

Nokia has been reluctant to meet all the meticulous specification requirements that notoriously fussy AT&T sets for phone vendors. The recent AT&T demand that Nokia drop WiFi support from certain key models has been difficult for Nokia to accept. The WiFi support is a key selling point of many mid- and high-end Nokia models in Europe and Asia, where most of Nokia's rivals such as Motorola (MOT) and Samsung have been far slower to bring this feature to mass market.

Despite the friction between the companies, some easing has been recently evident. The N-75 W-CDMA phone is the new lead Nokia phone at AT&T, and the operator is widely expected to bring a new range of N-series Nokia models out next winter to support the wider commercial push for its 3G services.

The imminent T-Mobile launch of 3G services combined with AT&T's 3G push is expected to be Nokia's new chance at a U.S. renaissance. Nokia's market share in 3G phones is higher than in the rest of the market. It was the first company to bring out mass-market 3G phones with advanced features such as 5-megapixel cameras, GPS and WiFi support.

The IDCC suit thus hits at a very delicate moment: Nokia's U.S. market share is close to decade lows, and its rebound hinges on the company's getting new 3G models into AT&T's marketing machine. Even before the judgement on the IDCC case is passed, American operators may be reluctant to place orders for models that are under threat of an injunction at a later date. AT&T is just emerging from the Broadcom threat to its phone supply, and hardly relishes the idea of a new threat of a phone ban.

Nokia is the lead target for IDCC, but this is probably only the beginning of a long series of suits. If Nokia gives in, IDCC will probably target smaller phone vendors. And if IDCC scores a victory right after the Broadcom win, watch out -- small patent holders will swarm like a cloud of locusts, homing in on the golden, ripe wheat fields of AT&T and Verizon.