Qualcomm Ordered To Pay BlackBerry $815 Million in Royalty Refund

Qualcomm said Wednesday that it has been ordered to pay smartphone maker BlackBerry $814.9 million in an arbitration dispute over patent royalties.

The San Diego wireless giant said the payment was ordered after both companies entered binding arbitration in a contract disagreement over Qualcomm's royalty caps.

The payment comes as Qualcomm's patent licensing business is increasingly under attack from government regulators and smartphone makers.

Qualcomm has been fined more than $850 million by South Korea's anti-monopoly regulator, which also is demanding changes in the way the company licenses patents. Qualcomm has appealed to the Seoul High Court.

The U.S. Federal Trade Commission and Apple also have sued Qualcomm over patent licenses. Both cases are pending. Investigations are under way in Taiwan and elsewhere.

While Qualcomm earns the bulk of its revenue from selling chips that power smartphones, it books most of its profit by licensing its portfolio of thousands of cellular patents. The company's patented technology is found in nearly all 3G/4G smartphones.

Canaccord Genuity Analyst Mike Walkley called the arbitration decision "surprising" in a research note, adding that it will help bolster BlackBerry's balance sheet as it pivots to focusing on software for future growth.

Qualcomm patent licenses agreements vary with each smartphone maker. A few make bulk prepayments of royalties in advance of device sales.

"When BlackBerry structured the deal, management had expected higher smartphone shipment volumes but ended up overpaying when units collapsed," said Tim Long, an analyst with BMO Capital Markets, in a research note.

According the Qualcomm, the BlackBerry dispute centered on whether Qualcomm's per device royalty cap program applied to BlackBerry's "non-refundable" prepayments of royalties on sales of BlackBerry subscription devices from 2010 through the end of 2015.

Long estimates that BlackBerry paid Qualcomm $2 billion to $2.3 billion for royalties for the five year period. Its smartphone sales peaked at around 53 million handsets in 2012 but fell just 7 million devices in 2015.

The arbitration panel's decision is binding and can't be appealed. Qualcomm said the ruling has no impact on agreements with other device makers.

"BlackBerry and Qualcomm have a longstanding relationship and continue to be valued technology partners," said John Chen, chief executive of BlackBerry, in a statement. "We are pleased the arbitration panel ruled in our favor and look forward to collaborating with Qualcomm in security for Application Specific Integrated Circuits and solutions for the automotive industry."

Qualcomm's shares dipped $1.23 to $54.13 in early trading Wednesday morning on the Nasdaq exchange.