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Qualcomm Chips Banned in Patent-Infringement Ruling

Posted on: Friday, 8 June 2007, 15:00 CDT

A federal trade agency ordered a sweeping ban of cell phones made with chips from San Diego-based Qualcomm on Thursday, dealing a potentially damaging blow to the high-tech company and the wireless industry.

The ruling by the U.S. International Trade Commission restricts wireless carriers including Verizon, AT&T and Sprint Nextel from importing new models of phones made since June 7. While the decision allows the service providers to continue receiving current models now on the market, it drew a sharp rebuke from some companies for stifling innovation.

The far-reaching order came during the penalty phase of a patent infringement lawsuit decided last year in which Qualcomm was found to have infringed patents held by rival chip-maker Broadcom. Qualcomm said it would immediately seek a stay from a federal appeals court while arguing its appeal of the case.

President Bush also has 60 days to approve or overturn the ruling.

Analysts were quick to describe the decision as unwelcome news for consumers as well as manufacturers, such as Motorola and Samsung Electronics, which make phones with Qualcomm chips. Some suggested the ruling could raise prices for phones and wireless service in an industry where new products arrive at a rapid pace.

"This is a bad order for the industry," said Nancy Stark, a spokeswoman for Verizon, who said her company would also file an appeal in the case and urge Bush to overturn the decision. "It could freeze innovation."

Stark said Verizon would continue offering its current phones, but pointed out that in a year's time, very few of today's models will still be on the market.

On a conference call, Qualcomm Chief Executive Paul Jacobs said tens of millions of handsets could be affected, but while "we're disappointed with this ruling ... there is no short-term disruption to the business."

Despite the potential disruption, Broadcom's David Rosmann, vice president of intellectual property litigation, said the decision was justified. "Qualcomm has become a serial patent infringer of Broadcom property," he said. "This is one of many important decisions" against the company.

Last month, for instance, a Santa Ana jury ruled against the company by finding Qualcomm infringed three Broadcom patents and awarded the company $19.6 million. Broadcom, based in Irvine, is seeking to have the award tripled because of what it believes was willful infringement.

While Thursday's decision represented a compromise -- Broadcom had asked that all phones with a Qualcomm chip be banned -- its effect may be to accelerate talks between the two companies.

On the conference call with analysts, Qualcomm said a significant gap remained between the two sides. Broadcom is seeking terms that are destructive to Qualcomm's business model, the company said. What Broadcom really wants through all its litigation is a license to Qualcomm's WCDMA technology that is widely used in today's most advanced cell phones, company executives said.

If its request for onerous terms continues, it won't be possible to reach an agreement, the executives said.

Broadcom also described the talks as stalled. "I won't say there has been any significant progress," Rosmann said. He disputed Qualcomm's claim about WCDMA technology. It isn't as simple as that, he said.

Contact Mark Boslet at mboslet@mercurynews.com or (408) 920-5425.

Source: San Jose Mercury News

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