After more than three years of legal squabbles over cell phone chips, the jury’s still out as to whether Irvine’s Broadcom Corp. and Qualcomm Inc. of San Diego are likely to settle.
The two companies have gone to court with lawsuits largely initiated by Broadcom trying to defend its patents for technologies related to the next generation of cell phones. Qualcomm has fired back with several countersuits.
After a few wins on specific patents for Broadcom, there’ve been rumors that the two companies could be in settlement talks.
But don’t count on one any time soon, say some Wall Street analysts and lawyers following the saga.
“Neither side has at yet signaled that they are tired of fighting,” said Mark Wine, a partner and intellectual property lawyer at the Irvine office of San Francisco-based Orrick, Herrington & Sutcliffe LLP. “It’s an ongoing process that keeps people who do what I do very busy.”
So far, Qualcomm has been found to infringe on two of Broadcom’s cell phone chip patents.
The companies have been battling it out over four other patents in courts in San Diego and Santa Ana.
Both companies have had some wins, but Qualcomm’s victories are a bit murkier.
A few weeks ago, it scored in a roundabout way when two top South Korean cell phone makers won an appeals court ruling that lifted a ban on chips found to infringe on one of Broadcom’s patents.
Broadcom is quick to say that Qualcomm has lost or dropped all of the cases it has brought against it. But that hasn’t seemed to hurt Qualcomm’s bottom line.
“It doesn’t appear that their business is hurting significantly and they have plenty of cash to pay penalties and fines,” according to Cody Acree, analyst at Stifel Nicolaus & Co.
Qualcomm’s licensing deal with cell phone maker Nokia Corp., which was struck earlier this year after years of legal wrangling, was seen as a sign that it was softening up and could look to negotiate with Broadcom.
“I thought it would make them more willing to settle,but it hasn’t happened,” said Dan Berenbaum, an analyst with Cowen & Co. in New York. “With a lot of these cases that are ongoing, any kind of decision to fight it has been in motion for a long, long time.”
Stepped-Up Lawsuits
Broadcom has stepped up its attacks in the past year.
The lawsuits it’s raised go beyond patents and seek to undermine the way Qualcomm does business by licensing chip technology.
Broadcom is asserting that Qualcomm’s “monopolistic activities limit competition, stifle innovation and ultimately harm consumers.”
It’s also seeking to put an end to Qualcomm’s practice of collecting double royalties on certain chips,a practice Broadcom alleges is “patent misuse.”
Qualcomm discounts the lawsuit.
“Broadcom’s latest complaint is meritless and misstates the law,” according to a statement from Qualcomm.
Analyst Acree doesn’t see Broadcom backing down any time soon, despite assertions it is open to talks.
“There’s not as much motivation to settle if you are Broadcom because you are winning,” he said. “They may be absolutely vindicated.”
It could be that Broadcom has too much at stake in its cell phone chip business to give in.
Investors have been watching the company to see if it makes good on its promise to build market share inroads in its business selling chips to the biggest cell phone makers.
It already has deals with Samsung Group and Nokia,but the revenue is slow in coming.
“We unfortunately haven’t seen a huge amount of success out of wireless yet,” Acree said. “Even though you are winning these legal battles, you don’t get new customers who are going to generate growth and profitability. So what was the point?”
Some analysts are getting antsy but defend Broadcom’s stance.
“It’s spending $300 million a year with almost no revenue to show for it,” analyst Berenbaum said. “Obviously I’d rather see that cash (spent on legal fees) go to shareholders. But an aggressive protection of intellectual property is essential to their business model. They obviously feel like the return is worth it.”
