August 7, 2007
Bush administration upholds ban on phones with Qualcomm chips
By Jennifer Davies and
UNION-TRIBUNE STAFF WRITER
Copley News Service
administration Monday upheld the ban on new cell phones that use
Qualcomm chips, putting further pressure on the San Diego wireless
Representative Susan C. Schwab said that the potential impact on
such companies as Qualcomm and concerns that the ban would thwart
innovation and effect public safety were not compelling enough for
her to veto it.
In June, the
U.S. International Trade Commission banned the importation of all
new phone models that use Qualcomm chips as punishment for the
company infringing on a patent held by rival Broadcom that helps
conserve battery power.
current phone models are not affected by the ban, the inability to
import new models could not only hurt Qualcomm but also wireless
phone companies such as Samsung and Motorola and service providers
such as Sprint Nextel because they rely on Qualcomm chips to power
their phones. In the competitive wireless phone market, offering
the latest technology and styling is critical to success.
American consumer is going to lose access to some innovative
products in the second half of the year,” said Mark McKechnie, an
analyst for American Technology Research in San Francisco.
In 2006, 83
million cell phones using Qualcomm chips were sold in theUnited
States, according to market research firm In-Stat of
Scottsdale,Ariz. Qualcomm said it was disappointed in Monday's
decision and plans to ask the U.S. Court of Appeals for the
Federal Circuit for a stay of the ban while it appeals the matter.
Qualcomm argues that it was not infringing on the patent
controlled by Irvine-based Broadcom.
also revealed that it had come up with new software that would
allow it to eliminate Broadcom's patented technology from its
pursue all legal and technical options available to us to minimize
the impact of the ITC order on consumers, our customers and the
entire wireless industry,” said Qualcomm chief executive Paul
Jacobs in a written statement.
for its part, applauded the decision, calling it a victory for all
U.S. patent holders.
Rosmann, vice president of intellectual property litigation for
Broadcom, said he was amazed that Qualcomm refuses to accept the
interesting that Qualcomm is still in denial after they have been
found multiple times to be a serial infringer,” he said.
companies have been embroiled in a multi-front legal battle over
patent rights and business practices as Broadcom attempts to enter
the wireless chip business dominated by Texas Instruments and
Wireless, the No. 2 cell phone service company in the U.S., will
not be affected by the cell phone ban as it recently entered into
a deal with Broadcom in which it will pay up to $200 million to
continue to import new phones with the offending chips.
decision, Schwab referenced an unnamed second company that made a
similar deal. Broadcom refused to comment on the issue.
Nextel said it had not entered into a deal. AT&T would not comment
on the matter. McKechnie said the trade representatives' decision
was not unexpected, especially after Verizon Wireless and Broadcom
struck their deal, which limited the ban's potential impact on
customers and ended Verizon's intense lobbying on the issue.
didn't expect a veto,” he said. “It would have been a great, big
experts said Qualcomm faces an uphill battle to try to get the ITC
order suspended or repealed by the U.S. Court of Appeals.
“The ITC has
a very good track record on appeal,” said Lyle Vander Schaaf, a
former ITC attorney. “Once you lose at the ITC, it's an uphill
battle to reverse them at the courts.”
Brittingham IV, an intellectual property expert and former
attorney for the ITC, added it's “very rare” for the court to
issue a stay for an ITC order.
stay is granted, he added, appealing the case could achieve little
since it could take up to two years for the appeals court to
resolve the dispute – too long for a wireless industry eager to
develop and sell improved products.
no stay – it's very difficult to see how manufacturers and service
providers can wait for any possible reversal,” Brittingham said.
said that its software workaround, which it only recently has made
available, is being well-received by customers. Sprint said that
it was already importing phones using Qualcomm's new software.
Qualcomm's senior vice president of legal counsel, said his
company is wary that Broadcom might challenge the new software,
making it difficult for phone makers to import phones.
we have new software available, the process still has significant
uncertainty,” Rogers said.
Rosmann said that Qualcomm has been disingenuous about the
software workaround, downplaying its significance as it angled for
a veto of the ITC ban.
talking out of both sides of their mouth,” he said.
out that in her order, Schwab urged U.S. Customs to develop
procedures to “minimize the burden” on importers of products that
do not contain the infringing chips.
companies that import cell phones and similar products fear the
order will cause their merchandise to be bottled up in Customs
even if it doesn't contain the chips.
heard people are freaking out,” Vander Schaaf said.
Customs could speed up the process is to allow importers to
certify that their products do not contain the infringing chips,
avoiding the need for an inspection. The concerns of phone makers
and phone companies will place further pressure on Qualcomm to
solve the problem.
rapidly approaching the spot between the rock and the hard place,”
said Ed Snyder, an analyst who covers Qualcomm for Charter Equity
Qualcomm is running out of options and the ban could have a real
impact on the company's performance.
“It's not a
good thing,” he said.
McKechnie said the ban comes as Qualcomm's global sales continue
to grow, with the United States accounting for about a quarter of
its total business. He said the Verizon Wireless deal also limits
some of the potential harm to Qualcomm's bottom line.
an overhang Qualcomm needs to work through one way or another,” he
Broadcom executive, said that Qualcomm faces other hurdles, such a
case in Santa Ana in which the company has already been found to
infringe on three other Broadcom patents and fined $19 million.
The judge in that case could also impose a ban on those patents,
he said. Proceedings on the matter begin next week.
four patents to worry about – not just one,” Rosmann said.
announcement of the trade representative's decision was made after
the markets closed.
Qualcomm rose $1.01 to close at $41.78 on the Nasdaq. They lost 28
cents in after-hours trading. The stock's 52-week range is
shares gained 48 cents to close at $33.44, also on the Nasdaq.
They rose 21 cents after hours. Their 52-week range is
and Associated Press contributed to this report.