The cell phone chip war seems to be breaking Broadcom Corp.’s way.
The latest win came earlier this month when the U.S. International Trade Commission banned imports of some phones with chips from Broadcom rival Qualcomm Inc. of San Diego.
Last week, the commission denied Qualcomm’s bid to set aside the penalty while it appeals.
“I think it’s a fair characterization that things are going our way,” said David Rosmann, vice president of intellectual property litigation for Broadcom.
Qualcomm is optimistic and focused on overturning the ITC ruling, general counsel Lou Lupin said.
The companies have been engaged in tit-for-tat squabbles over patents for more than two years. It’s the third major patent fight for Broadcom, which earlier faced off with Plano, Texas-based Microtune Inc. and Intel Corp.
The scorecard with Qualcomm so far:
– Qualcomm has lost or dropped all of its patent litigation against Broadcom.
– Broadcom charges that Qualcomm has infringed six patents for video compression and cell phone chips. Courts found Qualcomm to have infringed four of them.
– In May, a Santa Ana jury found Qualcomm liable for infringing on nine claims of three different Broadcom patents. It awarded Broadcom nearly $20 million in damages. In August, a judge is set to hear evidence for an injunction Broadcom requested.
– A hearing is set for this week to issue penalties in a San Diego trial that ended in January, in which the judge found Qualcomm had concealed information relating to its patents from a standards-setting body.
In an embarrassing omission, Qualcomm’s lawyers failed to turn in relevant documents during discovery,about 35,000 e-mails by some counts,for one of its patent cases against Broadcom.
In April, Broadcom escalated the battle by dropping a bomb that goes beyond patent claims,a lawsuit attacking Qualcomm’s way of doing business by licensing chip designs.
Then there’s the penalty handed down from the ITC, a federal trade watchdog.
The ruling bars Qualcomm and phone makers from importing the contested chips. It also prevents Qualcomm from designing the chips into next generation phones or supporting the testing and debugging of phones that already contain them.
Existing phone models in the U.S. that contain the chips are excluded from the order.
Broadcom had hoped for a harsher ruling barring sales of phones already in the country.
“We asked for something different from what the ITC did, but we understand that the ITC offered a compromise position that will go a long way,” Broadcom’s Rosmann said.
The White House has about 60 days to veto the ruling or let it stand.
Until then, Qualcomm, Broadcom and their customers are lobbying the U.S. Trade Representative and the White House.
The president can veto the decision for “policy reasons”,a broad term that leaves much to interpretation.
“It’s an informal type of procedure,” said Charles Schill, partner at Steptoe & Johnson LLP in Washington, D.C., and a former senior staff attorney at the ITC.
“Probably (Qualcomm) will try and bring some kind of political pressure,” he said.
Industry watchers say the president is unlikely to veto, given his administration’s long-running stance on protecting intellectual property abroad, especially in China.
The White House also has a track record of upholding ITC decisions.
“There have only been only five instances out of more than 600 cases since 1975 handled by the ITC when the president has disapproved its orders,” Schill said.
In three of those five cases, the ITC came out with a different penalty.
“It’s an uphill battle” for Qualcomm, Schill said.
Shortly after the ITC’s ruling, Qualcomm filed a request for a temporary hold on the ban with the Federal Circuit Court of Appeals.
Others from the wireless industry, including South Korean phone maker LG Electronics Inc. and service provider Verizon Wireless, a unit of Verizon Communications Inc., also are against the ban.
The court is set to hear from the ITC on Wednesday about keeping the ban pending the appeal.
Qualcomm is appealing to the White House to veto the penalty saying it could ultimately hurt businesses and consumers.
Wireless carriers and cell phone makers say the ban will make it tough to get new phones to consumers quickly, a key to staying competitive.
Safety Argument
Qualcomm has also raised the argument that the nation’s firemen, police and emergency rescue workers would stand to lose ground on implementing global positioning technology if the chips are banned.
The National Public Safety Communications Council, a trade group made up of other organizations, has said it opposes the penalty for those reasons.
“If this isn’t a case that cries out for presidential veto, I don’t know what would,” Lupin said.
Wall Street doesn’t seem to care too much about the drama.
Qualcomm’s stock is trading on par with where it was a year ago, as is Broadcom’s.
“The consensus is that some sort of cross licensing agreement or solution will occur that will avoid the more dramatic interpretations of this penalty,” said Alex Gauna, a chip analyst at UBS in San Francisco. “I’m going to assume that this ends up in a cross (license) and we will move forward.”
Still, investors should be wary about the outcome, Gauna said.
“Investors are overly complacent on this,” he said. “For Broadcom, a victory doesn’t necessarily mean revenues. If (the ban) goes through, this can have some fairly big material impact on the two companies.”
For now, both companies say the other’s terms are unreasonable. Negotiations over terms of a deal have been at an impasse for two years.
“Broadcom’s objective is to destroy our royalty business, which accounts for about two-thirds of our profits,” Lupin said.
Both declined to talk about negotiations.
“It has always been our intention to do a deal,” Broadcom’s Rosmann said. “We are not in the litigation business. We make chips.”
