Qualcomm under fire

Olga Kharif
04 Jun 2007

On May 29, Qualcomm was dealt yet another blow in its long-standing legal squabble with wireless world heavyweights, including chipmaker Broadcom and cell-phone maker Nokia. A federal jury in California found Qualcomm guilty of infringing on three Broadcom patents, awarding $19.6 million in damages.

The jury classified Qualcomm's (QCOM) infringement as willful, a distinction that means the damages could potentially be tripled (a hearing to determine the exact amount of the award won't be scheduled until June 18). Worse, Broadcom (BRCM) also could win an injunction barring Qualcomm from selling offending chips in the U.S."”and, possibly, even abroad. Qualcomm plans to appeal.

Seeking 'Certainty'

The guilty verdict comes as Qualcomm braces for what could be a more stinging legal setback. The U.S. International Trade Commission (ITC), which in late 2006 found Qualcomm guilty of infringing a different Broadcom patent, is slated to decide on June 7 whether to ban imports of cell phones containing Qualcomm's chips into the U.S. While the California case doesn't have direct bearing on the ITC review, 'this certainly doesn't help Qualcomm,'says Lyle Vander Schaaf, partner at law firm Bryan Cave and a former ITC attorney.

Neither do a new lawsuit by Nokia (NOK) against Qualcomm and another ITC patent infringement investigation involving the company, both announced in May. The new ITC probe involves a charge of patent infringement made by silicon packaging maker Tessera (TSRA) that names Qualcomm as one of multiple defendants.

With so many legal battles on so many fronts, pressure is mounting on Qualcomm to settle with Broadcom in the ITC case before June 7. '[Losing a case] tends to convince the losing party to be much more amenable to settlement terms,' Vander Schaaf says. 'The settlement would give them certainty, and give certainty to manufacturers of mobile phones. And sometimes certainty is worth more than a decision down the road.'
Risk Abounds

Qualcomm confirms that it's in talks with Broadcom. 'We've had discussions with Broadcom for a long while now, but we haven't reached an agreement,' says Alex Rogers, senior vice-president and legal counsel at Qualcomm. 'I am not expecting [a settlement], but I certainly wouldn't rule it out.'

Chances are that Qualcomm's customers, handset makers like Motorola (MOT), Samsung, and LG"”and their customers' customers, wireless operators like AT&T (T) and Sprint Nextel (S)"”are pressuring Qualcomm to do whatever is necessary to avert any such disruption to their businesses. 'It's a very, very volatile situation,' says Blair Levin, an analyst with Stifel Nicolaus & Co.. 'A lot of balls are in the air.'

Still, handset makers had better prepare for the worst: The California judge could choose to disallow the use of certain Qualcomm chips in the U.S. or abroad. The ITC, meanwhile, could ban imports into the U.S. of the actual finished product, cell phones with Qualcomm's silicon

The Broadcom case at the ITC centers on advanced wireless technologies called EVDO and W-CDMA that are now being deployed by mobile operators around the globe, spurring user demand for phones that can exploit the speedier Internet connections enabled by those networks. 'We believe there's a material risk that the ITC could issue an order that keeps out of the United States handsets containing Qualcomm's EVDO chips used by Verizon Wireless and Sprint Nextel for their 3G networks,' Levin wrote in a May 24 research note.

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