I’ve been following the Qualcomm 5G IP legal saga since the FTC filed an antitrust case against the company way back in 2017. Frankly, an entire screenplay could be written about the proceedings—in a dramatic turn of events, a district court in northern California ruled against Qualcomm in May of 2019. Now, despite the earlier loss, it’s looking like Qualcomm will get the last laugh. Qualcomm appealed the decision with the Ninth Circuit Court of Appeals, who, after holding a three judge hearing on the case this past February, have finally decided to reverse the decision, throw out the injunction and partial grant of summary judgment—a total win for Qualcomm on every issue. I was happy with this result, having long maintained the case was a total clown show.
I recently got the chance to talk with Alex Rogers, Qualcomm’s EDP and President of its licensing business (which most refer to as QTL—Qualcomm technology licensing), on the Six Five insider podcast I host with Daniel Newman of Futurum Research. I wanted to share some of my takeaways from our conversation around Qualcomm’s 5G intellectual property.
Rogers has led QTL since 2016, leveraging his extensive legal and business experience to manage the department’s regulatory commercial matters, drive growth and monetization, and negotiate licensing agreements. He’s been behind multi-year license agreements with pretty much every major handset OEM you could name, including Apple, Samsung, Huawei, Xiaomi, Vivo, LG and more. All said and told, the company has licensed over 10 billion devices, and holds over 140,000 patents and patent applications globally. According to Rogers, this makes Qualcomm the holder of the world’s most valuable patent portfolio and licensing business.
At the outset of our interview, he shared more about his trajectory. After college, he spent time working as a teacher and in construction, before landing a job as a gofer in a law firm. He told us he never actually wanted to be a lawyer but decided to go back to law school because he had blown out his knee and was in between insurance policies. In his words, the law degree was “purely mercenary”—he just needed money. And as it turns out, his experience as a high school teacher translated well into his job as a litigator.
Victory in the Ninth Circuit
While the official decision, which Rogers characterized to us as “a complete win on every single issue,” didn’t come until mid-August, Rogers said it was obvious from the oral argument that the Ninth Circuit panel was skeptical about the FTC’s case. The final decision, according got Rogers, is a win not just for the QTL business, but for technological innovation at large.
The Ninth Circuit’s decision included several key points. First, the court asserted that Qualcomm was under no anti-trust obligation to license its technology to rival chip suppliers. Secondly, it found that Qualcomm’s “no license, no chips” policy does not put an anticompetitive surcharge on its competitors, and for that matter, it does not undermine market competition. Next, the appeals court claimed that the district court’s ruling that Qualcomm’s royalties were unreasonable was based on a misunderstanding of patent royalties and how they are calculated. The end result, as I mentioned in the intro, was a total vindication of Qualcomm—the district court’s decision was reversed and the injunction and partial grant of summary judgment were thrown out.
Rogers expanded some on the decision and what it means for Qualcomm and the industry at large. First, he reiterated something the Ninth Circuit said, which is that when you apply competition law to innovation, it must be done with great care. Secondly, Rogers said, the decision recognizes that business model innovation is also crucial for businesses—not just technological innovation. He touted Qualcomm’s unique business model as being “extraordinarily good” for the mobile industry, 5G and customers, in spite of the criticism the company has gotten for it. In other words, unique is not necessarily a bad thing—it can be good and should be protected. It’s telling that even in the face of the district court’s original ruling, Qualcomm signed over 100 5G licensing agreements, including with all the major smartphone OEMs.
Qualcomm’s current focus
Qualcomm is made up of essentially two businesses, both currently focused on 5G. First is the scientific research and development behind the technology (R&D)—learning how to maximize radio spectrum, and creating more efficient and effective cellular communication systems that utilize it. This side of the business Rogers claims is “the heart of the company”, upon which Qualcomm was founded when it got its start as a research and technology transfer company 35 years ago.
The licensing business, on the other hand, takes this IP and seeks out customers in the mobile industry to license to for a fair return. This, in turn, funds more of this innovation Rogers calls “the foundation of the mobile world.” Worth noting is the fact that Qualcomm was licensing wireless technology, CDMA, before it ever began selling chips. The Ninth Circuit’s decision, essentially, ruled that these two businesses, R&D and QTL, are separate, and it is okay for them to operate separately. Very good news for Qualcomm.
Research for tomorrow begins yesterday
One thing I’ve noticed, as a tech analyst, is that companies really need to start working far in advance in order to lay the most effective groundwork for new technologies, such as 5G. It’s this aspect that really sets Qualcomm apart, in my opinion. The company has had ample time to enable what it calls “the fundamental benefits of 5G”: the ability to support faster throughput, lower latency, more users, more data, and particularly heavy use cases such as VR. According to Rogers, Qualcomm’s 5G R&D actually began nearly a decade ago, building and iterating on its leadership in 4G IP.
As Rogers describes it, Qualcomm’s 5G efforts can be broken down into three complimentary timelines. First, mentioned earlier, the company begins R&D of new technology way in front of its eventual standardization and implementation. Qualcomm leans very heavily into the research side, an area where many companies who claim R&D tend to skimp. Next, Qualcomm translates the new technology into viable standards, complete with an understanding of forward and backward compatibility, and proof of its commercial viability. Lastly is the licensing angle: getting 5G IP into mobile operator and partner hands.
It’s also notable, when talking about Qualcomm’s 5G patents, that they span a fairly wide spectrum of areas, including RF, power, compute, position location, multi-media and more. Rogers took care to note that when it comes to patents, it is quality not quantity that determines value, and what is considered “quality” ultimately is established by the market.
What’s next for 5G?
We also picked Rogers’ brain on what’s next for 5G—in particular, in regards to the recently finalized release 16. Release 16 will reportedly feature improvements designed to enable connectivity in other industries, such as high precision positioning for the auto industry. Rogers emphasized that Qualcomm is looking bring cellular connectivity into other industries without disrupting unlicensed spectrum, which is really important to operators. He also said that the new release increases capacity for operators, while also creating opportunities for private networks to implement cellular technology.
Qualcomm’s heavy involvement in what I call the “orchestration” of 5G is not surprising. As Rogers said, the company is uniquely positioned to usher the technology out into the world, because it goes far beyond just dropping technology into the industry and telling everyone to get on board. Qualcomm is much more involved—it builds and tests prototypes and runs simulations to validate technology prior to standardization. After that, it continues to optimize technology even after it is released into the market. Qualcomm also operates regional labs, from which the company assists its licensees with their new technologies and devices based off Qualcomm IP.
Rogers cited a number of items when asked what the most important things are for a successful licensing business. First and foremost, understandably, is having a high quality, high value patent portfolio (check) to shop around. This portfolio must include foundational innovations that will bring value and make it easier and quicker for other companies to build out the ecosystem, should they choose to license (check). As mentioned in the previous paragraph, it is important that licensers actively support the ecosystem, even after the technology leaves their hands, through advising, training, support for launches, assistance in expanding to new markets, and much more.
We also spent some time why the industry needs licensing, and challenges the sector faces. The big picture answer, given by Rogers, is that licensing essentially democratizes innovation and invention—it takes the cutting edge IP developed by private companies and makes it accessible to a broad range of companies and ecosystems. As such, it allows other companies to skip the R&D step and jump right into building on Qualcomm’s foundation. This lowers the barrier for entry for upstart companies, while also providing a steady return on investments for the companies like Qualcomm who do have the resources to dedicate to heavy R&D.
That said, licensing does get a bit of a bad rap. Instead of recognizing the above points, according to Rogers, a lot of the coverage around the topic tends to focus on the negatives. Many believe that cumulative royalties for IP licensers are too high. Others worry that Qualcomm’s licensing will somehow stymie the overall rollout of 5G. According to Rogers, what these critics ignore is the actual value of the underlying essential technology and IP that Qualcomm provides. This point was further illustrated by some numbers Rogers shared: the value of cumulative SEP licensing royalties was less than $10B worldwide in the year 2019. Meanwhile, in the same year, mobile device, operators, and infrastructure equipment brought in over $1 trillion in revenue. Considering how much of Qualcomm IP was integral to the development of these solutions, I would say OEM’s are making off with a pretty good deal.
Qualcomm in the age of Covid-19
A necessary question I found myself asking most of the companies I speak with these days is how are they coping with the ongoing Covid-19 pandemic, and whether or not it has hurt their business. Rogers maintained that the company is “executing very well” in spite of the pandemic, though its top priority is making sure its employees stay safe. Rogers also spoke to the need for increased innovation, connectivity, and security with the influx of people working from home (WFH). This is likely to remain the new normal, to some extent, and secure connectivity is a must. Rogers predicted that 5G, will eventually enable not just WFH, but WFA—work from anywhere. On top of that, of course, is the increased need for telehealth and remote learning solutions, which also require robust, secure connectivity. Rogers says that since the pandemic struck and people began to work from home, invention disclosures have risen 30%—a percentage that jumps even higher when we’re just talking about those that are 5G related.
Overall, it was a great conversation that did much to illuminate Qualcomm’s licensing business, unravel some of the confusion and misinformation around the antitrust lawsuit, and dig deeper on the ways Qualcomm is actually enabling—not stifling—5G development. QTL is instrumental in Qualcomm’s business strategy, and I’m glad that the Ninth Circuit recognized it for what it actually is—unique, good for the industry at large, and not anti-competitive. I’m hope the clown show is over. So that Qualcomm can keep doing what it does best—using its resources to research and develop tomorrow’s cellular technology, enabling the ecosystem to benefit from those advancements, and investing royalties back into doing more research.
Note: Moor Insights & Strategy writers and editors may have contributed to this article.
Disclosure: Moor Insights & Strategy, like all research and analyst firms, provides or has provided paid research, analysis, advising, or consulting to many high-tech companies in the industry, including 8×8, Advanced Micro Devices, Amazon, Applied Micro, ARM, Aruba Networks, AT&T, AWS, A-10 Strategies, Bitfusion, Blaize, Calix, Cisco Systems, Clear Software, Cloudera, Clumio, Cognitive Systems, CompuCom, Dell, Dell EMC, Dell Technologies, Diablo Technologies, Digital Optics, Dreamchain, Echelon, Ericsson, Extreme Networks, Flex, Foxconn, Frame, Fujitsu, Gen Z Consortium, Glue Networks, GlobalFoundries, Google (Nest-Revolve), Google Cloud, HP Inc., Hewlett Packard Enterprise, Honeywell, Huawei Technologies, IBM, Ion VR, Inseego, Intel, Interdigital, Jabil Circuit, Konica Minolta, Lattice Semiconductor, Lenovo, Linux Foundation, MapBox, Mavenir, Marseille Inc, Mayfair Equity, Meraki (Cisco), Mesophere, Microsoft, Mojo Networks, National Instruments, NetApp, Nightwatch, NOKIA (Alcatel-Lucent), Nortek, Novumind, NVIDIA, ON Semiconductor, ONUG, OpenStack Foundation, Oracle, Poly, Panasas, Peraso, Pexip, Pixelworks, Plume Design, Portworx, Pure Storage, Qualcomm, Rackspace, Rambus, Rayvolt E-Bikes, Red Hat, Residio, Samsung Electronics, SAP, SAS, Scale Computing, Schneider Electric, Silver Peak, SONY, Springpath, Spirent, Splunk, Sprint, Stratus Technologies, Symantec, Synaptics, Syniverse, Synopsys, Tanium, TE Connectivity, TensTorrent, Tobii Technology, Twitter, Unity Technologies, UiPath, Verizon Communications, Vidyo, VMware, Wave Computing, Wellsmith, Xilinx, Zebra, Zededa, and Zoho which may be cited in this article.