San Diego Union Tribune

September 13, 2007

For now, ban lifted on chips in phones

Qualcomm gets stay until case is resolved

COPLEY NEWS SERVICE

STAFF WRITER

WASHINGTON – Qualcomm won a round yesterday in what had seemed a lost cause when a federal appeals court temporarily lifted a ban on importing cell phones that use a certain type of its chips until the outcome of its patent-case appeal.

Online: To read the court decision, go to uniontrib.com/more/phonestay

The ruling is an early holiday present for San Diego-based Qualcomm and the handset manufacturers who use the chips it produces that have been found to infringe upon a patent owned by Irvine-based Broadcom.

The appeals court process could take nine to 18 months, according to Qualcomm. That would allow Kyocera Wireless, Motorola, Samsung Electronics and other cell phone manufacturers to import new models with the chips for the holiday sales season, when new and innovative features are important for competition.

“That's great news for Qualcomm,” said Michael Cohen, director of research for San Diego-based Pacific American Securities.

“I think it's very good news for Qualcomm's customers that they won't be impeded from importing new models in time for Christmas,” he said.

In addition, Qualcomm will have longer to develop a technological work-around that does not infringe upon others' patents – should the company not prevail in its appeal to the U.S. Court of Appeals for the Federal Circuit.

News of the appeals court ruling came after the markets closed yesterday. Qualcomm shares rose 83 cents in after-hours trading after ending the day down 14 cents to $37.87 on the Nasdaq. The shares' 52-week range is $34.10 to $47.72.

Shares of Broadcom fell 9 cents yesterday to $35.37, also on the Nasdaq, and were unchanged after hours. The stock's 52-week range is $26.80 to $37.50.

Qualcomm had appeared to suffer a grievous economic blow last month when the Office of the United States Trade Representative affirmed a U.S. International Trade Commission order banning the import of new cell phone models with the offending chips, which help phone batteries conserve power. Last year, 83 million cell phones using Qualcomm chips were sold in the United States, according to In-Stat of Scottsdale, Ariz.


 

Advertisement

That trade decision marked a victory for Broadcom, because it meant that Qualcomm or its customers would have to reach a deal with Broadcom or give up potentially millions of dollars in sales as a result of not being able to stock their shelves with new models.

Smith R. Brittingham IV, a former ITC attorney, called the stay a “significant development in Qualcomm's favor.”

“They can wait for the decision (from the court) and they won't suffer in the meantime,” Brittingham said.

The companies that sought the stay included Kyocera Wireless, Motorola, Samsung Electronics, Sanyo Fisher and LG Electronics – all cell phone manufacturers – and AT&T and T-Mobile, which operate wireless networks.

Broadcom and the ITC opposed the request.

The five-page order signed by Appeals Court Judge Haldane Robert Mayer said the companies raised substantial questions about the ITC's authority to ban their products when they were not found in violation of rules and were not named in the ITC case brought by Broadcom.

It said a stay, or postponement, of the ITC order on their imports was warranted while Qualcomm's request for a stay on its imports and redesigned chips and products was not.

Qualcomm said yesterday that it does not import the chips, which arrive already installed in phones rather than individually.

“It's quite rare for the federal circuit to stay ITC orders pending appeal,” said Lyle Vander Schaaf, a former ITC attorney. “This is sort of a first-of-a-kind thing.”

Alex Rogers, a Qualcomm lawyer overseeing the case, described the court order as a huge break for Qualcomm, which has been battered in recent months in wide-ranging legal battles with Broadcom.

“We're gratified,” Rogers said late yesterday.

Broadcom officials expressed satisfaction that the court denied several Qualcomm requests.

“We look forward to an expedited process in the appeal and believe that the stay will eventually be lifted for all parties,” said David A. Dull, Broadcom's senior vice president and general counsel.

Beyond any economic benefit to Qualcomm, analyst Cohen said the stay would relieve pressure on Qualcomm to reach a settlement with Broadcom during the appeal.

The action cast into some doubt the wisdom of a decision by Verizon to cut a $200 million deal with Broadcom to continue to use the infringing chips, because it appears that its rivals will now be able to use them without an agreement, analysts said.

Verizon spokesman Jim Gerace defended the company's move, saying the deal gives Verizon the right to “many” chips that were in dispute, including three others that Qualcomm has been found to be infringing upon in a separate case.

“We wanted to remove the entire overhang, and that's what we did,” Gerace said.

“It isn't accurate to say that we didn't get much out of our $200 million, because that remains to be seen,” he said.

Qualcomm and Broadcom have been dueling in legal venues nationwide over patent rights and business practices as Broadcom attempts to crack the wireless-chip business dominated by Texas Instruments and Qualcomm.

“What (Broadcom) was seeking to do in this ITC case was essentially attack our customers and impose an exclusion order against them – and then use that as leverage to negotiate a settlement with Qualcomm on terms favorable to them,” said Qualcomm attorney Rogers.

 

 »Next Story»