Richard Lloyd

According to a news report earlier this week Qualcomm has offered to agree to certain patent-related conditions in order to get the greenlight for its $38 billion takeover of NXP from European Union regulators. The giant US chipmaker is said to have told regulators that it will not acquire NXP’s standard essential patents (SEPs) and will not assert the Dutch company’s IP relating to near field communication (NFC) technology, except for defensive purposes.

Given that Qualcomm is one of the world’s leading licensors and makes a big chunk of its profits from monetising its patent portfolio in the mobile space, these possible concessions are very significant. The San Diego based business’s licensing practices are of course well and truly in the spotlight right now thanks to various regulatory investigations and its increasingly bitter spat with Apple. As we reported earlier today, Qualcomm was fined $773 million by Taiwan’s antitrust authorities (the company has said it will challenge the decision in court) and has also been hit with fines in the recent past by South Korea and China.

Regulators are therefore presumably very sensitive to any deal involving the company that could extend its IP supremacy into other sectors. The rationale behind the NXP deal is that it gives the US company a new avenue into the auto and Internet of Things (IoT) sectors, which will help fuel its growth as it faces growing competition as a chipmaker to the smartphone industry.  

The complimentary nature of the proposed acquisition can perhaps best be seen through the two companies’ patent portfolios. This analysis from TechInsights, carried out after the deal was announced last year, shows how little overlap there is. The NXP patent stockpile also includes some of the assets acquired as part of its 2015 takeover of Freescale Semiconductor for $11.8 billion. As TechInsights’ points out, the NXP deal “will allow Qualcomm to grow into other markets rather than the maturing markets that it is already well established in”.

If the recent report is correct and Qualcomm is willing to give up NXP’s SEPs in any deal then it highlights how this transaction is about extending the company’s product reach, not its status as a licensing behemoth. Presumably it will take a licence to any IP that it gives up, but then the question is who will acquire the NXP patents? In a semiconductor industry that has consolidated significantly in recent years and has become particularly active in terms of litigation between some of the major players, it is probably safe to assume that there will be plenty of interest from incumbents looking to strengthen their portfolios and possibly from investors looking to monetise the assets. Interest should also be heightened by the fact that NXP’s IP is focused on two rapidly developing markets in auto and IoT.

We don’t know yet just how many NXP patents Qualcomm might be forced to sell, but any disposal of the assets could become the most anticipated patent sell-off since the Nortel portfolio in 2011. That auction had some very specific market factors which meant that the two main competing parties — Google and the Rockstar consortium — quickly bid the price up to more than $4 billion. We may not see quite that level of activity, not least because of the very tough licensing conditions in the US, but in a deals market that could do with any shot in the arm it can get, an NXP patent sale could provide a welcome boost.