InterDigital struggles with patent disputes

It has been a rocky year's end for Philly50 denizen InterDigital Inc.

The developer of high-end technologies that help keep your smartphone smart and running has been locked into a patent dispute with some of the largest makers of cellphones - Nokia, Huawei Technologies Co., and ZTE Corp.

The dispute turned particularly ugly earlier this month when William Merritt, the chief executive of InterDigital, accused Chinese regulators of threatening to arrest any InterDigital representatives who might attend a Dec. 18 meeting in China to discuss Huawei's antitrust complaints against his company. As a result, he sent no one.

InterDigital took another blow Dec. 19 when the U.S. International Trade Commission ruled against its patent-violation complaint against Nokia, Huawei, and ZTE. InterDigital's stock plunged 10 percent to $28.77.

The ruling also caused InterDigital to readjust its strategy: On Tuesday, the company agreed to binding arbitration to resolve its dispute with Huawei.

Arbitration "will yield what we've been seeking all along: a global licensing agreement," Merritt told Bloomberg News. InterDigital's stock rose 4 percent.

The dispute highlights the unusual niche that InterDigital inhabits. It neither makes nor sells concrete products, but, rather, develops and patents digital technologies that others use in their own manufactured goods - in this instance, cellphones.

InterDigital, which has a portfolio of about 20,000 patents and patent applications, earned $663 million in revenue in 2012, including $279 million from patent licencing fees and $384 million in patent sales.

While licensing patents for fees can be a lucrative business model, it has its critics, as a result of unscrupulous firms known as "patent trolls." The unflattering term refers to patent holders that file unwarranted suits against valid technology users, who sometimes settle just to avoid the cost of litigation.

A bill to curb that practice recently passed in the House. It awaits Senate action.

InterDigital takes umbrage at any suggestion that its actions are analogous to those of patent trolls.

In its defense, the company has posted a recent interview Merritt gave to Engadget, a website that covers consumer electronics. Merritt said InterDigital's patents stem from its own research, as opposed to being purchased, as patent trolls are wont to do. Any litigation the company brings is to protect its legitimate patent rights, Merritt said.

"It's always very trying to be lumped into that category" of patent troll, Merritt said. "At Mobile World Congress this year, we demonstrated technologies - all of them developed in-house - that we expect to see in the marketplace in four to five years. That's how far ahead of the curve we often work."