If chip behemoth Intel Corp. was trying to score public relations points with its patent infringement lawsuit against upstart Broadcom Corp., the strategy,like other recent Intel moves,isn’t going exactly as planned. Time will tell whether Intel’s charges have any legal weight, but it’s already becoming clear that their immediate propaganda value has been close to nil.
“If you can’t beat ’em, sue ’em,” wrote Alex Guana, an analyst at Banc of America Securities in a statement that reflects the skepticism held by some industry watchers.
In a strongly worded suit filed last month, Intel accuses Irvine-based Broadcom of luring away employees and mining them for Intel trade secrets, and building “nearly every aspect of Broadcom’s business” on them. The claims stem from Intel’s ongoing suit surrounding three engineers Broadcom hired from Intel’s Level One Communications Inc. subsidiary earlier this year. The suit’s unusually caustic tone, which accuses Broadcom of executing a “carefully crafted plan to build Broadcom’s business using Intel technology,” reveals a level of animosity unusual for the famously cautious chip maker.
Partners and Adversaries
It’s even more notable considering that Intel was an early Broadcom investor, plunking down about $5 million in the Orange County company’s earliest days. And, in several areas, the two companies remain allies. Intel and Broadcom have collaborated on several technologies and consider themselves close partners in the nascent home networking area. Broadcom’s stock has fallen about 12% to about 218 since Intel filed suit, while Intel’s has fallen about 17% to about 61.
According to an article in Forbes, “bad blood” between the two chip makers goes back several years but came to a head only last spring. The tenor of the lawsuit spurred Broadcom to issue a public statement on the matter, saying among other things that Broadcom has become “a real threat to older, more entrenched companies attempting to retool to participate in the broadband communications revolution.”
Unintentionally, the suit has heaped more negative publicity on Intel in what had already become a bad month for the Santa Clara semiconductor maker. The company recently had to recall its newest 1.13-gigahertz Pentium III chips because of a design flaw, and began offering discounts to PC makers after finding little success in persuading them to adopt the high-speed Rambus memory it had hoped to make standard.
With those fiascos in mind, many analysts and media outlets have characterized the most recent move as an act of desperation by Intel, which has made barely a dent in the fast-growing market for communications and networking chips, at least partly because of Broadcom’s success in those areas.
Intel, the leader of semiconductors used in PCs, has had a slow start translating that success into chips used for communications equipment. Most analysts, however, expect the company to be a major player eventually.
Tide Turning Toward Broadcom
Though few are dismissing Intel’s claims outright, many are showing clear favoritism for Broadcom. A few examples: Red Herring.com columnist Dan Briody weighed in on the issue with a piece that started: “Like a kid losing badly in a playground game, Intel pointed at Broadcom Wednesday and said in desperation, ‘You’re cheating.’ ” Banc of America Securities’ Gauna chided the suit as the “desperate flailing of an Intel drowning in the broadband sea.” In an article titled “Does Intel really buy its own Broadcom suit?” ZDNet News analyst David Coursey asks whether Intel is merely trying to slow down Broadcom to give itself a fighting chance in the new market. Intel officials insist such conjecture doesn’t faze them, arguing that the company always has considered its intellectual property a foundational asset.
Pattern of Abuse Claimed
“Our patent portfolio represents billions of dollars of R & D;,” said Intel spokesman Chuck Mulloy. “The only thing we can say to skeptics is that we have an obligation to protect that asset. That’s what this is about. This is not about a competitive move on our part at all.”
The company used the strong wording, Mulloy added, to emphasize its point that Broadcom’s alleged patent violations stemmed from a cavalier attitude and pattern of abuse.
Broadcom officials won’t comment extensively on the suit other than what company chief Henry Nicholas said in the company’s official response. But in a recent interview with CNN’s Moneyline, a confident Nicholas dismissed the suit as an attempt to slow his company’s relentless progress in the fast-growing broadband networking market, which includes everything from cable modems to super-fast corporate networks.
“I found it interesting that Intel did not identify any single product that we infringed,” he said. “That suit is not about intellectual property at all, but an employee’s right to change jobs, to go from a company to one of its competitors.”
But it would be a mistake to automatically accuse anyone of filing an infringement suit frivolously, said Arthur Rose, a partner at Newport Beach law firm Knobbe, Martens, Olson & Bear LLP who worked for the U.S. patent office while attending law school in the 1970s. According to Rose, chances are the companies will reach a settlement long before the issue ends up in court.
“It’s neither standard nor appropriate to file meritless lawsuits for competitive advantage,” he said. “This is not something you can take lightly.” n
