BBRY Blackberry Limited

By Ted Greenwald and Imani Moise 

Qualcomm Inc. on Wednesday said it was ordered to refund $814.9 million in patent royalties paid by BlackBerry Ltd., the latest in a string of setbacks to the chip maker's intellectual-property licensing business.

The dispute between Qualcomm and BlackBerry -- over a refund of prepayments based on a disagreement over royalty rates -- is particular to a licensing agreement between the two companies, Qualcomm said. It has no impact on Qualcomm's licensing agreements with other companies, it said.

Still, the issue resonates with the broader question of how much Qualcomm can continue to profit its intellectual property.

The San Diego-based company has developed technology deemed essential to cellular communications, and it collects royalties from nearly every smartphone sold world-wide -- a business that accounts for most of its profit.

However, that business in recent years has been under attack. Customers and regulators in several countries have claimed Qualcomm's licensing regime violates laws governing fair competition. Apple Inc. in January sued Qualcomm, claiming the company uses its dominant position in smartphone chips to charge onerous royalties. The U.S. Federal Trade Commission charged Qualcomm with anticompetitive practices, and antitrust authorities in China and South Korea have levied fines against the company.

"There's an overarching question whether customers will continue to pay them what they've been paying," said Stacy Rasgon of Bernstein Research. "We've seen evidence that customers are doing whatever they can in an attempt to pay them less."

Qualcomm said it doesn't agree with the decision, but it can't be appealed.

The payment will be a big boost for BlackBerry, amounting to nearly two-thirds of the total revenue BlackBerry generated in fiscal 2017. A final award including interest and attorney fees will be issued at a hearing next month, BlackBerry said in a press release.

The news sparked a rare double-digit spike in BlackBerry's stock price, which rose more than 16% midday to $8.96 -- the highest price in more than a year.

Despite the dispute, the companies called each other valued partners that would continue to work together.

The award settles binding arbitration between the companies that has been in progress since at least mid-2016, according to Qualcomm financial filings.

Qualcomm charges royalties based on a percentage of the average selling price of a device, but its licensing agreement with BlackBerry included a cap on that price basis. The refund that BlackBerry won in arbitration retroactively applies that cap to the prepayments.

Such caps are a negotiable aspect of Qualcomm's licensing agreements, a person familiar with the matter said. Qualcomm hasn't disclosed the dollar amount of any caps it has agreed to.

The company has said its royalty rate can be as much as 5% of the average price per device, but reported its average royalty rate as 2.9% in its most recent fiscal year, as implied by its total royalty revenue and its internal research on the number of devices shipped and their prices.

Qualcomm's payment to BlackBerry is a refund on royalty fees BlackBerry prepaid to Qualcomm on future sales of devices between 2010 and 2015, which explicitly weren't refundable, Qualcomm said.

BlackBerry, a pioneer in smartphones, saw its sales tumble during that period. In fiscal 2011, it generated $16.4 billion in revenue on hardware sales, largely from shipping 52.3 million smartphones. By fiscal 2015, hardware revenue plunged to $1.5 billion as smartphone shipments fell to 4 million.

--Jacquie McNish contributed to this article.

Write to Ted Greenwald at Ted.Greenwald@wsj.com and Imani Moise at imani.moise@wsj.com

(END) Dow Jones Newswires

April 12, 2017 17:55 ET (21:55 GMT)

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