Oh No Mr. Bill! (Part 2) Patents at Qualcomm and Nokia

In our preceding article we applied the principle of Negotiation Leverage to a sales argument for replacement software.  The case we looked at used an overstated fear of the risks of lack of support to attempt to drive a client to buy a replacement.  We called it the “Oh No Mr. Bill!”[1] argument, because it relied on using the fear of catastrophe to motivate the buyer.  For the most part, it is an ineffective argument.

Let’s look at another “Oh No Mr. Bill!” argument, this time for patents.

In 2005, a string of lawsuits began between Qualcomm and Nokia, after Nokia’s license to use Qualcomm patents had expired.  It is a certainty that Qualcomm, in advance of that expiration, warned (or “threatened” – take your pick) Nokia that failure to renew would cause any number of catastrophes for Nokia, up to and including a complete inability to ship their products because of injunctions Qualcomm would win in court.  If they were smart (see our “Value” articles), Qualcomm quantified the revenue impact that this would have on Nokia, and the subsequent stock losses.  Oh No, Mr. Bill!

As K&R would predict, these arguments failed to motivate Nokia to act before the expiration of the agreement.  Instead, there have been 3 years of lawsuits and countersuits, including a complaint from Nokia to the EOC about Qualcomm’s behavior.

Yet recently, they settled.  Why?  Several factors combined to ratchet up the Negotiation Leverage that could be brought to bear. No single article we read had all the factors in it.

First, one of the reported key technology patents that Qualcomm owns is related to Long-Term-Evolution (LTE).  LTE is a technology that most cell service providers plan to deploy in 2010.  This creates a negotiation “timestamp” which is outside of Nokia’s control, but which is critical to their ability to remain competitive in selling phones to their clients.  Given the likely development timeline for phones, Nokia had to either settle soon or find an alternative technology.  Without one or the other, the risk to their revenue becomes real. The approach of that timestamp creates leverage for Qualcomm. Nokia could counter only it if they had a real technical alternative or if they settled.

Second, the actual patent infringement case was about to begin.  The settlement came on the same day that the case was scheduled to start.  The start of the trial was actually delayed one day to allow the settlement conversations to continue.  The start date probably created leverage on both parties, but to a greater degree on Nokia.  Court costs are not insubstantial, so Qualcomm cares about that.  However, there are both court costs and the risk of an injunction affecting Nokia.  The greater leverage probably bears on Nokia, and accrues to Qualcomm.

Third, the settlement also came one day after a German court invalidated a key Qualcomm GSM patent.  This raises the risk of additional invalidations, and decreases the certainty of a licensing payout from Nokia to Qualcomm, adding leverage for Nokia.

This Qualcomm/Nokia story shows another example the big difference between the threat of catastrophe and its reality.  The threat sounded imminent, but in reality, it was 3 years away.

Don’t make this mistake when you negotiate.  Understand your real Negotiation Leverage position.  When you are negotiating, think about what is causing leverage – on you, and on the other side.  Don’t fall for the “Oh No Mr. Bill!” argument.  Make sure your logic is sound, and based on real risks and rewards.

Oh, one last thing.  Qualcomm and Nokia signed a 15-year agreement.  We’ll check back in 2023, when the leverage starts building up to interesting levels again.  (td)

[1] Mr. Bill is the clay figurine star of a series of short subjects shown from 1976 to 1980 on Saturday Night Live (SNL). The “Mr. Bill Show” was a parody of children’s shows.