ITC Rejects Qualcomm’s Plea to Stay Chip Ban

The U.S. International Trade Commission (ITC) has denied a request from Qualcomm to put on hold an order barring phones containing chips made by Qualcomm that have been found to infringe on a rival’s patents from the U.S. market.

The decision, handed down on Thursday, likely leaves Qualcomm with few options for delaying the penalty, and the company may now have to hope the U.S. appeals courts will grant a stay.

The ITC handed down the order on June 7 and said it would become final unless the U.S. Trade Representative vetoed it within 30 days. That hasn’t happened, despite a plea from Qualcomm for the Bush administration to intervene on its behalf and issue a presidential veto.

Barring Phones

This week, CTIA, the cellular industry association, also called for a veto from the White House, saying the order would “freeze innovation” by removing the incentive for carriers to offer next-generation services. The White House can veto the order within 60 days.

The order bars phones containing some Qualcomm chipsets from being imported into the United States and came after Qualcomm was found to have infringed on patents held by rival Broadcom.

The order does not extend to chips imported into the U.S. raw, or not yet placed inside of devices, and does not cover existing phones, only new third-generation, or 3G phone models brought into the U.S. after June 7.

Willing to Talk

Broadcom hailed the denial. “The ITC went to great lengths to provide a remedy that limited Qualcomm’s ongoing infringement without harming public heath and safety, competitive conditions in the U.S. economy, or U.S. consumers,” said General Counsel David A. Dull.

Dull seemed to leave the door open for negotiations, though Qualcomm has said it would enter licensing talks with Broadcom. “Broadcom simply wants to be adequately compensated for the use of our intellectual property and to be able to compete fairly in the cellular markets,” he said.

Investors and analysts have been largely sanguine in spite of the various legal battles Qualcomm is facing. In addition to the finding by the ITC that Qualcomm was infringing, a federal jury also found Qualcomm had infringed patents held by the rival chipmaker. Qualcomm is also locked in a dispute with Nokia, which has accused the company of manipulating the standards-setting process to favor its technology.

Qualcomm stock did fall Friday, however, dropping 1.4 percent to US$42.98.

Wireless carriers and some handset makers may be among those who suffer if the ban eventually takes full effect. The timing could make the ban especially painful, since carriers and phone makers are in the process of readying product for the coming holiday shopping season.

Telling Time

Qualcomm may not see immediate impacts from the ruling, since all phones already on the market can continue to be imported and sold, giving it time to find ways around the order’s specific bans.

The denial of an appeal and the lack of movement on the veto front may turn up the pressure on Qualcomm to settle with Broadcom. That move could be a costly one given its current position, and Qualcomm likely wants to avoid that outcome because so much of its business relies on intellectual property and it may worry that a sizable payout will encourage others to pursue claims.

The federal appeals court has asked the ITC to respond to Qualcomm’s request for a stay by the end of this month. If the appeals court doesn’t grant a stay, a settlement will become far more likely, said American Technology Research analyst Mark McKechnie.

Looking Ahead

Regardless of the negative legal outcomes, Qualcomm remains well-positioned to thrive long-term, McKechnie said.

“It positioned itself extremely well to take advantage of the next wave of mobile services,” he said.

The timing may mean some pain along the way, however, since the technology in question involved 3G handsets, which are now gaining momentum in the U.S. market, said Gartner analyst Alan Brown.

“Qualcomm invested heavily in developing technology and then getting major carriers to adopt it for 3G, so the payoff for that work is about to come,” Brown said. The various legal issues swirling around the company “could throw up some roadblocks,” he added, but are unlikely to change the fundamentals of its market advantages.