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Nokia pleads for lower licensing fees

The cell phone maker says limiting the amount of money equipment makers pay for licensing could speed the spread of new technologies. License holders say: Fat chance.

Handset maker Nokia wants to limit how much money equipment makers pay to license intellectual property needed to build certain next-generation phones and wireless network equipment.

Spokeswoman Megan Matthews said Wednesday that Nokia wants companies that license the technology--including Nokia itself--to pay no more than a total of 5 percent of the cost of building a device for intellectual property. That would be regardless of how many companies and patents are involved, and it would be 5 percent for all the companies combined, not individually. There is currently no cap in place, she said.

The limit would only be for a cell phone technology called W-CDMA, or Wideband Code Division Multiple Access. The standard is used to create next-generation cell phone networks that transfer data at speeds of between 384kbps to 2MB per second. So far, 30 carriers say they intend to build W-CDMA-based telephone networks, according to Nokia. NTT DoCoMo in Japan and Finnish carrier Sonera have launched W-CDMA networks.

Nokia's effort is supposed to help speed the spread of W-CDMA, Matthews said. The proposed cap would bring in lower intellectual property fees than the telecommunications industry usually charges, although Matthews and others refused to disclose the percentages they charge. Capping royalty fees will likely decrease the cost of the ensuing cell phone and network equipment. That makes it attractive to telephone companies, which are now in the midst of a downturn after years of record growth, she said.

For the effort to work, Nokia would need the cooperation of the other major W-CDMA patent holders. They include Ericsson, which claims it has about 40 percent of the patents; Qualcomm; Motorola; and Japanese telephone company NTT DoCoMo. So far, reaction to Nokia's proposal has gotten a thumbs-down.

Mats Thoren, an Ericsson spokesman, said the handset maker doesn't like Nokia's proposal.

"We don't think this is a good idea," he said. "The market will decide the level. To date, we have solved this within the industry without problems. We don't see what they are addressing here, really."

Qualcomm declined comment Wednesday. Representatives for the other major patent holders and phone companies didn't immediately return a phone call for comment.

Analysts consider Nokia's request very unusual. Patent holders generally let the market decide how much they are willing to pay to license technology. Analysts say manufacturers let patent holders know they are charging too much by not building their products, said Peter Glaskowsky, editor-in-chief of The Microprocessor Report, an industry newsletter.

"The whole purpose of having patents is to allow the company that developed the intellectual property to have a monopoly on the technology for a set period of time," Glaskowsky said. "They can charge anything they want."

Nokia said it is not alone in endorsing the idea of capping the amount of intellectual property costs. Nokia's Matthews said the Third Generation Partnership Project also supports the cap. The 3GPP, of which Nokia is not a member, was created in 1998 and says it represents hundreds of mainly European and Asian telephone service providers. It says on its Web site that it has adopted a similar position to Nokia's.

The 5 percent figure is the best of both worlds, Matthews said. It's high enough for young companies, whose only product is their intellectual property. But it's also low enough not to scare away major manufacturers, she said.

But others disagree. Glaskowsky said the 5 percent "would be a high number," in comparison to some other industries. Certain types of memory earn royalties of between 1 percent and 1.5 percent. Microprocessor design patent holders charge even higher royalty fees than 5 percent.

"Five percent would be high, but not unprecedented," Glaskowsky said.