InterDigital Communications Corporation

views updated

InterDigital Communications Corporation

781 3rd Avenue
King of Prussia, Pennsylvania 19406-1409
U.S.A.
Telephone: (610) 878-7800
Fax: (610) 992-9432
Web site: http://www.interdigital.com

Public Company
Incorporated: 1972 as International Mobile Machines Corporation
Employees: 312
Sales: $87.9 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: IDCC
NAIC: 533110 Lessors of Nonfinancial Intangible Assets (Except Copyrighted Works)

InterDigital Communications Corporation has been a pioneer in wireless telecommunications technology for more than 30 years. The publicly traded company is based in King of Prussia, Pennsylvania, a suburb of Philadelphia. InterDigital's inventions, technology, and systems can be found in cell phones, personal digital assistants (PDAs), mobile computing devices, and other wireless devices—as well as base stations and other infrastructure equipment. A leader in the development of the first two generations of wireless technology, InterDigital is now concentrating on the development of intellectual property for the third generation of wireless communications, or 3G, and the WCDMA (wideband code division multiple access) airinterface protocol. The company focused on two different ways to achieve two-way communication, known as duplexing. Frequency Division Duplexing (FDD) splits the channels into separate frequencies. Time Division Duplexing (TDD) creates time slots to split a single channel. In addition to its King of Prussia facility, InterDigital also maintains operations in Canada, the United Kingdom, and Germany.

Company Is Incorporated in 1972

The visionary behind the creation of InterDigital was Sherwin Seligsohn, a high school dropout who made a fortune in the stock market during the 1960s when he was still in his 20s. His interest in wireless technology dated back to 1968, when one day while in Atlantic City he longed for a way to keep up with the stock market without leaving his spot on the beach. According to some accounts, he wanted to receive stock quotations by way of a portable data machine, and others say he simply wanted to talk to his stockbroker on the phone. Whatever the details of his inspiration, Seligsohn began to pursue the development of a portable wireless telephone. He worked on the idea for three years and in 1971 presented a prototype of the world's first wireless handheld analog telephone. In 1972 he launched a company to exploit the idea, incorporating International Mobile Machines Corporation (IMM). The first product the company developed was a portable analog radio system in the 450 Mhz band, capable of connecting to the public switched network. During the bicentennial celebrations held in Philadelphia in 1976, IMM demonstrated its wireless telephone in Franklin Park, the same place 100 years earlier that Alexander Graham Bell made his first demonstration of the telephone.

While IMM worked to perfect a commercially viable radio telephone, which it hoped to sell to the rural market as well as to developing nations which could not afford the costs of establishing a wired infrastructure for a telephone system, the company's scientists began to explore the analog cellular technology that was emerging in the 1970s. Because computer chips were getting smaller and cheaper while gaining greater processing power, it was apparent that a pocket telephone would become an eventuality. But the IMM scientists identified a number of drawbacks to the analog approach, including poor voice quality and high power consumption. Instead, IMM elected to go digital, turning to a well established technology called Time Division Multiple Access (TDMA), used by the military and some commercial wire-line system. Under this method, the frequency spectrum was split into time slots and individual users were assigned a slot. What IMM did was to apply TDMA to create a wireless cell phone system.

In the meantime, IMM also worked on telephone calling security and screening technology, forming a subsidiary, Telephone Access Control Technology. In 1981 the business was sold off when IMM decided to concentrate its efforts on the portable digital telephone. In that same year, IMM went public, making an initial offering of stock. Over the next five years the company made a total of three offerings, raising $32 million. The company opted not to become a cell phone manufacturer. Rather, it would patent its cellular hardware and software technology and license those patents to other companies interested in making handsets. IMM began filing patents around the world, "in places," in the words of an InterDigital executive, "that during the '80s, a rational person might not have filed." These efforts, however, would pay off years later.

UltraPhone Rolled Out in 1986

While IMM worked on cellular technology and filed patents in the 1980s, it continued to pursue its founder's original rural radio-telephone idea, which had evolved into the digital Ultra-Phone system. Rather than being mobile, it provided "fixed wireless access," a "last mile" device to provide local telephone service to areas that were either too remote to be wired by copper into a telephone system or developing countries where the cost of establishing a wire infrastructure was out of reach. The system's central network station had the ability, depending on the terrain, to serve customers within a 40-mile radius. The first UltraPhone System was installed in the mountainous area of Glendo, Wyoming, in 1986, purchased by Mountain Bell, a subsidiary of US West Inc. The system was set up to serve ten houses at a cost of $100,000. If copper wired had been used, the cost would have been an estimated $40,000 per house. By the end of 1988 the UltraPhone system was operating in ten communities in North America, including Kodiak, Alaska. Despite all of IMM's promise, whether it be its cellular technology or the UltraPhone system, the company posted modest revenues and a string of losses throughout the 1980s. Although sales of the UltraPhone system grew steadily from 1987 to 1992, so too did IMM's losses. In 1991, for instance, IMM recorded revenues of $33.6 million and a loss of $7.7 million. A year later revenues improved to $39.7 million, yet the company lost nearly $23 million. (It was also during this period, in June 1990, that Seligsohn relinquished the chairmanship of IMM, becoming chairman emeritus. He went on to launch another company, Universal Display Corp.)

In October 1992 IMM made a major course correction. It used stock to acquire long Island-based SCS Mobilecom, Inc. and SCS Telecom, Inc. SCS and IMM had a working relationship for several years, and by now merging their technologies the combined company was in a strong position to benefit from changes that were about to emerge in the wireless field—which was ready to move from first generation analog technology to second generation (2G) digital technology and ultimately broadband digital 3G technology. IMM brought to the table its leadership position in Time Division Multiple Access (TDMA) digital radio technology, while SCS had some 30 patents either granted or pending related to its Broadband-Code Division Multiple Access (B-CDMA) digital wireless telecommunications technology. SCS had been working on B-CDMA for 20 years and now had a prototype system in operation. It offered a number of advantages over rival Narrowband-CDMA in replacing or supplementing first and second generation wireless technology. It was fully compatible with both analog cellular and TDMA digital cellular, and unlike Narrowband-CDMA it operated effectively inside buildings and in congested urban areas. In conjunction with the SCS acquisition, IMM changed its name to InterDigital Communications Corporation. The name was meant to connote the intermeshing of the companies' two digital technologies. The combined company also brought in a new chief executive officer, cellular industry veteran William Erdman.

InterDigital continued to produce and market the UltraPhone system as well as such products as wireless PBX and cordless telephones, but the company was less concerned with shortterm profits than it was in pursuing 3G technology and positioning itself for even greater paydays in the future. It was also determined to protect its intellectual property and to earn some licensing fees. InterDigital's approach to arranging royalty payments from manufacturers it believed were using its proprietary technology was somewhat ham-fisted, however. Rather than working with these companies—who were in effect their customers—during product development, InterDigital opted to wait until the products were on the market. At this point, it demanded royalties and as a consequence created an acrimonious relationship with manufacturers, which led to a series of long-running patent infringement lawsuits against such heavyweights as Motorola and Ericsson. In 1994 InterDigital was successful in working out a royalty deal with AT&T, the first time the company would be paid for its technology without having to sue. A year later, it sued Motorola for patent infringement and, to the surprise of many, InterDigital lost. It was almost a devastating blow to the company, which was now severely weakened in its ability to enforce its patents around the world and coming close to ruin.

While InterDigital's attorneys sought to reverse many of the jury decisions in the Motorola case and pursued other patent infringement cases through the legal system, the company's researchers in the 1990s forged good working alliances with other companies. In 1994 InterDigital established a marketing and technology alliance with German electronics giant Siemens AG, a major producer of digital switches. In 1996 InterDigital entered into an alliance with Korea's Samsung Electronics Co. Ltd., the world's 14th largest corporation in the world. Another technology partner was found in the French electronics firm Alcatel. InterDigital received both cash and engineering help from its partners, focusing on applying wideband CDMA technology to fixed wireless systems (suitable, say, for a fixed location wireless fax machine). During this period, from 1994 to 1999, the partners did not see much of a need, hence market, for mobile broadband technology. Cell phones were thought to simply transmit voice and nothing more. But with the rise of the Internet, coupled with the explosive popularity of the cell phone, that thinking would change. Now InterDigital, which held exclusive patents in wideband wireless, and its alliance partners came to realize that far from developing a niche product, they were on the verge of a technological breakthrough. Wideband technology applied to mobile wireless would permit the transmission of voice and data (i.e. the Internet) at essentially the same cost as fixed location service.

Company Perspectives:

For more than 20 years, InterDigital Communications Corporation has been a recognized pioneer in the architecture, design, and delivery of advanced wireless technology platforms.

Nokia Alliance Forged in 1998

Finland's Nokia Corporation, today the world's top cellphone maker, became aware of InterDigital's patent position in wideband and in 1998 forged a four-year $70 million contract with InterDigital to develop 3G cell phones. The cell phones would be manufactured under the Nokia name, but InterDigital would own the technology. This positive development was offset somewhat by the announcement by Siemens and Alcatel that they were pulling their support from InterDigital's fixed wireless products. From their perspective, there was little reason to provide funding and expertise to a company that in partnership with rival Nokia might very well make their fixed wireless telecommunications products outdated. For its part, InterDigital pulled back from fixed location wireless and chose to concentrate on the far more promising mobile wireless field. Starting in 1999 InterDigital adjusted its business plan. No longer would it develop fixed wireless telecommunications systems or act as a manufacturer/distributor of these systems. The company recast itself as a think tank for next generation wireless communication, offering its technology and engineering expertise to the entire industry.

One of the major challenges InterDigital faced in the early years of the new century was finding enough qualified engineers to hire. The company began to recruit in Canada and Europe. A design office was opened in Canada to accelerate its hiring effort. While InterDigital pushed forward on the development of the next generation of wireless technology, litigation with Ericsson over the previous generation of wireless technology was finally coming to a head in a U.S. District Court. The two sides began their patent infringement suit in February 2003, but in March they reached a settlement that was a major victory in InterDigital's quest to receive royalties on its 2G wireless patents. The company estimated it could receive $100 million in royalty payments over the next four years from Ericsson Inc. and Sony Ericsson Mobile Communications AB. Moreover, InterDigital, its position validated, was poised to strike deals with other licensees, making it possible that the company was on the verge of receiving a windfall of hundreds of millions of dollars in the near term. InterDigital estimated that it could be in line for $360 million to $430 million in damages, retroactive fees, and advanced payments. These positive developments for the company centered on its 2G technology. Given its strong position in 3G technology, it was very likely that InterDigital, a 30-year overnight success, was on the verge of even greater prosperity.

Key Dates:

1972:: Company is incorporated as International Mobile Machines Corporation.
1981:: Company goes public.
1992:: Name is changed to InterDigital Communications Corp.
1998:: Alliance with Nokia is established.
2003:: Patent infringement suit is settled with Ericsson.