Digital Media Division “Commercializing” Government Business

1. Digital Media Division “Commercializing” Government Business Joyce Nelson Vice President & Division Counsel QUALCOMM Digital Media

2. Who We Are QUICK FACTS on QUALCOMM • Code Division Multiple Access (CDMA) • Pioneered and commercially developed by QUALCOMM, over 731 patents issued (over 1929 pending) as of Q1 ’02 • Over $2 Billion QUALCOMM R&D funding • CDMA converts speech into digital information and transmitted as a radio signal over a wireless network, uses a unique code to distinguish each different call • Enables more security, more people to share airwaves at the same time with less static, cross-talk, or interference • Industry standard for third generation wireless (3G) • Over 100 million consumers worldwide • Member of the S&P 500 Index • “100 Best Managed Companies” – Industry Week • “100 Best Companies to Work for in America” – Fortune • Complimentary technologies such as position location, internet access and streaming media

3. Who We Are Products and Divisions • Innovation is heart and soul of our business creating technologies that move the industry forward, licensing manufacturers and supporting every leading telecom equipment and consumer electronic brand in the world • Leading supplier of CDMA chipsets and system software • New products and features include kid trackers, camera phones, MP3 players, game players, surveillance systems, and car safety systems • Cell phones quickly becoming handheld sophisticated computers running internet and multimedia software • Our Binary Runtime Environment for Wireless (BREW) provides a common platform for enabling hardware and software developers to create new applications quickly and cost-effectively without affecting phone hardware and software

4. Why We’re Here QDM • Develops special products and applications on our wireless terrestrial and satellite technologies for military, federal, local and foreign governments • QSec™-800 secure wireless handset provides advanced-level encryption/decryption to achieve Type 1 security to a standard cell phone operating on a commercial network • OmniTRACS security characteristics support military and government operations in Kosovo and Bosnia as well as hazardous materials vehicle tracking in the US and abroad • Leverage existing and ongoing QUALCOMM investment • Several Classified and unclassified studies, research, and projects related to CDMA technology, products, and applications • Allows for creative R&D unhampered by normal “bottom line” commercial pressure

5. Historical QUALCOMM • 15 years of Government Contracts with over 400 contracts totaling $300M in revenue • Government business is less than one (1%) of QUALCOMM’s revenue • Types of King Vehicles include OT’s, FAR Part 15 (T&M, Cost Type), Simplified Acquisition Part 13, FAR Part 12 Commercial Acquisition

6. Our Goal QUALCOMM as Strategic Partner • Traditionally Government takes an adversarial stance in contract negotiations and administration. • Governments desire for high technology solutions requires strategic partnerships and Integrated Project Teams to include government requirements within rapidly evolving state of the art commercial technology

7. Current Contracting Issues Intellectual Property (Patent Rights): • Mandatory procurement patents clauses are not acceptable when “subject patents” (separate commercial development activities occurring during the same “period of performance”), compromise the developed suite of commercial patents. • Patent clauses are not written to protect IPR rights, government’s contract scope usually overlaps the commercial activities at the company. • Government “march-in rights” are inconsistent with commercial patents operations and licensing practices and require multiple handling procedures for commercial and government programs containing the patents clauses. • Ref. FAR clauses: 52.227-11, 12 and 52.227-3

8. Current Contracting Issues (cont’d) Government Data Rights • Mandatory data rights clause is unacceptable, large amt. of info required information that in the commercial world is never released to the customer. • Government contract involving minimal government investment with standard data rights clause may result in exposing a company’s core intellectual property as it is not always possible to technically separate technical data relating to the feature developed under the Government Contract from a company’s core intellectual property. • Authority exists to negotiate “Specifically Negotiated Data Rights” down to the level of Limited, Restrictive or Government Purpose Rights but even Specifically Negotiated Date Rights are not restrictive enough to protect a company’s core intellectual property. • Government customers need for technical data could be met with Proprietary labels and legends currently only available with OT’s and FAR Part 12 commercial data and can contain tailored clauses that expressly define the parties needs and rights in technical data while expressly excluding preexisting IP. • Ref. DFARS 252.227-7013 and 7014

9. Current Contracting Issues (cont’d) Incompatibility with FAR Subcontracting Requirements (Small Business) • Government Contracts require a specific percentage of subcontracting efforts to be met by Small Disadvantaged Businesses • QUALCOMM arranges strategic long term partnerships with suppliers which include just-in-time mechanisms to keep inventories stocked with minimum negative impact to ROI, incompatible with government requirement Weighted Guidelines & Statutory Limit on Fee • Government uses Weighted Guidelines for calculating fee on development, Guidelines formula inconsistent with commercial realities. • statutory limit of 15% fee is a significant barrier to entry when scarce engineering resources are needed for primary company product lines. • Negative opportunity cost that creates a disincentive

10. Current Contracting Issues (cont’d) CAS • Procurement regulation compliance with CAS in a commercial environment can only be accomplished by employing labor intensive methods unique to government contracting resulting in substantial additional cost and inefficiencies to both the government contract as well as commercial programs not otherwise subject to CAS procurement regulations. • It is these additional costs, constraints, and maintenance that make CAS unacceptable to most commercial entities. FAR Part 12 contracts impose No CAS compliance.

11. Current Contracting Issues (cont’d) Cost of the “care and feeding” of Government Contracts • Additional labor and inefficiency caused by the items listed above require a significantly larger labor force to manage government contracts • DD254 Contract Security Classification Specification boilerplate form is outdated and not consistent with commercial business.   • In a time when there are not enough American workers to meet the employment needs of high tech companies, the Government often precludes the use of foreign nationals on Governments contracts that are not classified.

12. Current Direction QUALCOMM • Creatively implementing ways to transact with the government based on commercial practices and commercial terms and conditions • Looking for opportunities to expand the scope of FAR Part 12 and “commercial item” acquisition • Change in current OT legislation regarding prohibition for CAS covered companies to participate

13. Current Direction (cont’d) Definition of “commercial item” • Customarily for non-governmental purposes • Has been, or will be, sold, leased, or licensed to the general public • Includes modification customary in marketplace, or minor modifications to meet government requirements • Includes services that are procured for support of a commercial item if they are offered to the public under similar terms or sold competitively in substantial quantities and based on established catalog or market prices

14. Current Direction (cont’d) Commercial Practices • Use of commercial items frequently means embracing commercial practices embedded in creating the commercial item • Includes business practices and strategies in areas such as development, maintenance, upgrades, availability of spares • Finance and Commercial Program Management, Product Management, Legal, and Administrative functions already in place

15. Current Direction (cont’d) Contracts • Part 12 requires a negotiation process rather than FAR mandate on applicable clauses • Government cannot expect to fit commercial practices within a traditional government procurement framework • License agreements and data rights can and should be negotiated under FAR Part 12 • Government must respect proprietary nature of technical data provided or produced with “commercial items”

16. Current Direction (cont’d) Product Life Cycles • Opportunity to enhance performance and rapid technology insertion should motivate the government to use “commercial items” • The commercial marketplace drives frequent changes • Rapid technology innovation, Government Budget process and the current government procurement cycles are not suited for the commercial technology marketplace

17. Current Direction (cont’d) Price Justification • Government inability to guarantee sustained funding or orders over multiple years not suited for commercial marketplace • Government needs to adapt to commercial price justification practices (market research) • Pricing is determined by commercial market factors (competition, supply & demand)

18. Summary We See the Opportunity for A Unique Partnership • Government is able to leverage existing and future state-of-the-art products, services, and technologies • Government is able to take advantage of rapid technology insertion, reduce cost and schedule • QUALCOMM is able to commercialize feature development and drive content in the commercial marketplace • Keep U.S. technology leading through Government assisted development / involvement