Qualcomm 2014 Annual Report Download - page 22

property policies and practices that could have the effect of limiting returns on intellectual property innovations; (v) lobbying governmental
regulators and elected officials for the purpose of seeking the imposition of some form of compulsory licensing and/or to weaken a patent
holder’s ability to enforce its rights or obtain a fair return for such rights; and (vi) licensees using various strategies in attempts to shift their
royalty obligation to their suppliers. In addition, particularly in China, certain licensees have disputed or underreported royalties owed to us
under their license agreements with us, and certain companies have yet to enter into or delayed entering into license agreements with us for their
use of our intellectual property, and such licensees and/or companies may continue to do so in the future.
We are currently subject to litigation and various governmental investigations and/or proceedings, some of which may arise out of the
strategies described above. Certain legal matters are described more fully in the notes to our consolidated financial statements. See “Notes to
Consolidated Financial Statements, Note 7 - Commitments and Contingencies.” The unfavorable resolution of one or more of these matters
could have a material adverse effect on our business, results of operations, financial condition and/or cash flows. Depending on the type of
matter, various remedies that could result from an unfavorable resolution include, among others, injunctions, monetary damages or fines or other
orders to pay money and the issuance of orders to cease certain conduct and/or modify our business practices.
In addition, in connection with our participation in SDOs, we, like other patent owners, generally have made contractual commitments to
such organizations to license those of our patents that would necessarily be infringed by standard-compliant products (standard-
essential patents)
on terms that are fair, reasonable and nondiscriminatory (FRAND). Some manufacturers and users of standard-compliant products advance
interpretations of these FRAND commitments that are adverse to our licensing business, including interpretations that would limit the amount of
royalties that we could collect on the licensing of our patent portfolio.
Further, some companies or entities have proposed significant changes to existing intellectual property policies for implementation by SDOs
and other industry organizations with the goal of significantly devaluing standard-essential patents. For example, some have put forth proposals
which would require a maximum aggregate intellectual property royalty rate for the use of all standard-essential patents owned by all of the
member companies to be applied to the selling price of any product implementing the relevant standard. They have further proposed that such
maximum aggregate royalty rate be apportioned to each member company with standard-essential patents based upon the number of standard-
essential patents held by such company. Others have proposed that injunctions not be an available remedy for infringement of standard-essential
patents and/or have made proposals that could severely limit damage awards and other remedies by courts for patent infringement (e.g., by
severely limiting the base upon which the royalty percentage may be applied). A number of these strategies are purportedly based on
interpretations of the policies of certain SDOs concerning the licensing of patents that are or may be essential to industry standards and on our
(and/or other companies’) alleged failure to abide by these policies.
Some courts and governmental agencies have adopted and may in the future adopt some or all of these interpretations or proposals in a
manner adverse to our interests, and SDOs may adopt such interpretations or proposals as so-called clarifications or amendments to their
intellectual property policies.
We expect that such proposals, interpretations and strategies will continue in the future, and if successful, our business model would be
harmed, either by limiting or eliminating our ability to collect royalties on all or a portion of our patent portfolio, limiting our return on
investment with respect to new technologies, limiting our ability to seek injunctions against infringers of our standard-essential patents,
constraining our ability to make licensing commitments when submitting our technology for inclusion in future standards (which could make our
technology less likely to be included in such standards) or forcing us to work outside of SDOs or other industry groups to promote our new
technologies, and our results of operations could be negatively impacted. In addition, the legal and other costs associated with asserting or
defending our positions have been and continue to be significant. We assume that such challenges, regardless of their merits, will continue into
the foreseeable future and may require the investment of substantial management time and financial resources.
The enforcement and protection of our intellectual property rights may be expensive, could fail to prevent misappropriation or unauthorized
use of our proprietary intellectual property rights, could result in the loss of our ability to enforce one or more patents, or could be adversely
affected by changes in patent laws, by laws in certain foreign jurisdictions that may not effectively protect our intellectual property rights or
by ineffective enforcement of laws in such jurisdictions.
We rely primarily on patent, copyright, trademark and trade secret laws, as well as nondisclosure and confidentiality agreements,
international treaties and other methods, to protect our proprietary information, technologies and processes, including our patent portfolio.
Policing unauthorized use of our products, technologies and proprietary information is difficult and time consuming. We cannot be certain that
the steps we have taken, or may take in the future, will prevent the misappropriation or unauthorized use of our proprietary information and
technologies, particularly in foreign countries where the laws may not protect our proprietary intellectual property rights as fully or as readily as
United States laws or where the enforcement of such laws may be lacking or ineffective. Some industry participants who have a vested interest
in devaluing patents in general, or standard-essential patents in particular, have mounted attacks on certain patent systems, increasing the
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