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VOLUME 37 NUMBER 6

Licensing
THE

Journal
Edited by Gregory J. Battersby and Charles W. Grimes
 Royalty Rates
Florian Mueller
Qualcomms
Involuntary
Refund to
Blackberry
Amounts to
Approximately
$5 Per Device
About two months ago,
BlackBerry announced that it
was going to receive a refund of
$814.9 million from Qualcomm
and Qualcomm confirmed that
fact in a statement: The parties
had agreed to arbitrate a con-
tract dispute relating to one spe-
cific issue: whether Qualcomms
voluntary per unit royalty cap
program applied to BlackBerrys
non-refundable prepayments of
royalties for sales of a speci-
fiednumber of subscriber units
from 2010 through the end of
2015.
BlackBerrys lawyers from
the Sullivan & Cromwell firm
stated the basis for the payment
consistently with Qualcomms
representations, but a bit more
specifically: The dispute arose
in 2015 following Qualcomms
agreement to cap certain roy-
alties applied to payments
made by BlackBerry pursuant
to a licensing deal. Blackberry
argued that it was overpaying
Qualcomm.
That wording sounds even
more like the rebate (a term
rejected by Qualcomm) Apple
says Qualcomm promised under
a special cooperation agreement.
There still is not any indi-
cation of the arbitration panel
having made a FRAND rate
determination. It all sounds like
JUNE/JULY 2017
a contract dispute, including what
BlackBerry wrote about this in its
last annual report: On April 20,
2016, [BlackBerry] and Qualcomm
entered into an agreement to arbi-
trate a dispute over the application
of a royalty cap agreement related
to a license agreement between
the parties. The Company filed
its Demand for Arbitration and
Statement of Claim on May 2,
2016. Qualcomm filed its response
on May 16, 2016. Proceedings are
ongoing.
The term specified number of
subscriber units from 2010 through
the end of 2015 in Qualcomms
press release on this recent arbi-
tration award could mean all or
some of the devices BlackBerry
sold during the period in question.
What Im interested in (because
I believe many readers will be
curious, too) is what indication
the rebate gives us with a view
to Qualcomms standard-essential
patent (SEP) royalty demands. A
couple of months ago I saw indi-
cations, by deducing and inferring
information from certain public
documents, that Apple may have
been paying Qualcomm approxi-
mately $20 for its baseband chip
and a second amount like that
for a patent license (a total of $40
per device for the chip and the
license). The higher the rebate
is on a per-unit basis, the more
likely it is that Qualcomms roy-
alty demands are really that high
(were talking about stratospheric
heights compared to what other
companies are rumored to receive;
e.g., financial investors appear to
believe that Nokia receives about
$2 per device from Apple).
So lets look at publicly-available
information in the light most
The Licensing Journal
favorable to Qualcomm: That
the royalty cap applied to all
BlackBerry smartphones sold in
the years 20102015. Not only is
that most favorable to Qualcomm
but it also is a reasonable
assumption.
Here are some quotes from sev-
eral annual reports by BlackBerry
that state unit volumes:
The Company recog-
nized revenue related to
approximately 3.2 million
BlackBerry handheld devices
in fiscal 2016, compared to
approximately 7.0 million
BlackBerry handheld devices
in fiscal 2015.
[ ] approximately 13.7 mil-
lion BlackBerry handheld
devices in fiscal 2014, com-
pared to approximately 28.1
million BlackBerry handheld
devices recognized in fiscal
2013.
The Company shipped
approximately 49.0 million
BlackBerry handheld devices
in fiscal 2012 compared to
52.3 million devices in fiscal
2011.
Thats 153.3 million devices. If
the arbitration award is divided
by that number, the per-unit fig-
ure is $5.31. Regardless of some
remaining uncertainty as to
whether the royalty cap applied to
all BlackBerry smartphones, that
number is pseudo-precise because
BlackBerrys fiscal year (March
1February 28) overlaps with only
10 months of a given calendar
year. But if we round that number
down to $5 per unit, then we dont
imply more precision than we can
deliver and we have enough of a
cushion that the number should
be just about right.
Theoretically, a $5 rebate could
be granted on a royalty payment
of $6, but more realistically the
refund represents a fractionnot
1
necessarily a small fraction, but
still a fractionof the amount that
was paid. Maybe $5 per unit is
exactly what BlackBerry wanted.
Even arbitration can have an out-
come that favors only one party,
especially when merit is a binary
question, though a middle ground
is more common in arbitration.
At any rate, I would view the $5
per-unit refund to BlackBerry as
another indication of my $20 per-
unit royalty estimate not having
been off base.
If Qualcomms royalty levels are
indeed extremely high, it comes
as no surprise that various major
automotive and information and
communications technology
companies are interested in the
ongoing FTC v. Qualcomm litiga-
tion [case number 5:17-cv-00220,
Northern Dist. of California].
In an open letter to President
Trump, these companies urge the
President to shield the Federal
Trade Commission (FTC) from
political interference that could
derail the ongoing antitrust liti-
gation in the Northern District of
California against Qualcomm.
But the BlackBerry story also
shows that Qualcomm paints a
rosy picture when it claims that the
industry at large has accepted its
royalty rates, with only Apple and
Samsung allegedly trying to avoid
paying a fair license fee. Let me
quote again from that Sullivan &
Cromwell PR piece: Blackberry
argued that it was overpaying
Qualcomm. Who knows what
other companies would argue the
same.
Florian Mueller has 30 years of
software industry expertise span-
ning different market segments
(games, education, productiv-
ity and infrastructure software),
diverse business models, and
technical and commercial areas
of responsibility. He has advised
a diversity of clients on the patent
wars surrounding mobile devices,
and on their economic and techni-
cal implications. Mr. Mueller is
now developing games for smart-
phones and tablet computers.

Copyright 2017 CCH Incorporated. All Rights Reserved.

Reprinted from The Licensing Journal, June/July 2017, Volume 37,
Number 6, pages 1213, with permission from Wolters Kluwer, New York, NY,
1-800-638-8437, www.wklawbusiness.com