Qualcomm and Nokia have finally settled their long-running legal dispute over royalty patents, reaching a settlement that will allow each company to use the other's technology for the next 15 years. The settlement, which was reached yesterday after the first day of their latest US court hearing, brings to an end a legal fight that has lasted three years and stretched across three continents.

While the terms of the agreement were not disclosed, the agreement does include up-front payments, ongoing royalties and pass-through rights - similar to the structure Qualcomm has with other handset vendors. I view this settlement as a positive for Qualcomm as it lifts a major pall on the future direction of the company and strengthens the company's strong royalty position in the 3G handset market.

Potential for a 10% upside to EPS: Qualcomm has in the past discussed an exclusion of about 25¢ to 30¢ of EPS from Nokia. Discounting a preferential royalty rate for Nokia (Nokia's statement that the new agreement lies within its original expectations, leads me to believe that a 25% - 30% discount on royalty rates is prudent); and also assuming a $150 - $200 million decline in legal fees; I think that net net EPS upside of 20¢ or 10% upside to Qualcomm's EPS estimates.

Deal is a positive for Nokia as well: Strategically, I think that this deal is a positive for Nokia as well. In its current "fourth screen" strategy, Nokia needs the assistance of innovators like Qualcomm if it is going to dominate the next generation of mobile multimedia devices. A deal with Qualcomm opens the doors to a closer working relationship in chipsets and an improved position for both Nokia and Qualcomm in LTE (4G wireless), where carriers has been reluctant to start deployment before a clear industry view on patent ownership and royalty rates.

I also think that Qualcomm has probably signed some kind of a cooperation side agreement with Nokia for expansion into North America.  This is because, as part of the agreement, Nokia will have rights to use Qualcomm's technology including Mediaflo (which is only currently available in the United States with carriers and broadcasters).