Court Ruling Gives Qualcomm Breathing Room in Patent Struggle

A U.S. appeals court has granted Qualcomm and a group of handset makers that use its chips a reprieve from a ban on the import of mobile phones containing technology found to have infringed on patents held by rival Broadcom.

Qualcomm announced late Wednesday that it had received a stay of the International Trade Commission (ITC) order from the Court of Appeals for the Federal Circuit, which was widely seen as the venue of last resort for Qualcomm after appeals to the Bush administration to overturn the ITC ban went unanswered.

The ruling is a victory for a slew of phone manufacturers and telecoms that had filed motions supporting a stay, including Kyocera, Motorola, Samsung, T-Mobile,LG and AT&T.

Chips Already Inside Phones

The ITC issued the ban on June 7, supporting a request from Broadcom to do so after Qualcomm was found to have infringed on Broadcom patents relating to power-saving technology within mobile chipsets.

The partial stay applies only to chips already assembled inside phones. Qualcomm still cannot import so-called “naked chips” made overseas back into the U.S., but because the vast majority of phones sold in North America are assembled overseas, the ban was seen having potentially damaging consequences for Qualcomm. In fact, Qualcomm said it currently does not actively import any raw chipsets.

“We are pleased that the Court of Appeals recognized the undeserved harm to parties who were not named in the lawsuit, and that our customers will continue to be able to introduce new products into the U.S. marketplace during the appeals process,” said Alex H. Rogers, Qualcomm’s legal counsel.

Qualcomm shares were up more than 1.2 percent in morning trading Thursday to US$38.46. Shares of Broadcom were up a few cents to $35.45.

Sigh of Relief

Qualcomm has argued that the ITC ruling unfairly placed a financial burden on Qualcomm customers and partners, who had not been named in the complaint brought by Broadcom.

The case will now proceed to what is expected to be an expedited appeal process.

The court said the handset makers and carriers involved in the case had shown that the “harm factors” in the ban weighed in their favor and had presented a substantial case for why they may prevail on a full appeal.

The ruling may affect what are believed to be ongoing settlement talks, American Technology Research analyst Mark McKechnie told the E-Commerce Times. “Without a stay, there would have been enormous pressure on Qualcomm to settle,” he said, with customers facing the prospect of not being able to sell key phones during the important holiday season pushing the chipmaker for relief.

The legal uncertainty may be taking its toll, McKechnie added, with Motorola reportedly considering alternative chips to build into its next-generation phones, possibly using chips from Texas Instruments instead of those based on Qualcomm technology.

Broadcom, meanwhile, portrayed the ruling as a partial victory as well, noting that the court kept in place the prohibition on direct imports and also did not issue a stay for redesigned chips containing the same technology.

“We are pleased that Qualcomm will not be permitted to continue its infringement of our patent while the appeal proceeds, either as to its original design or its purported redesign,” said the company’s general counsel, David A. Dull. “We look forward to an expedited process in the appeal, and believe that the stay will eventually be lifted for all parties.”

More to Come

Broadcom noted that the U.S. Trade Representative declined to reverse the ITC order and that the case is one of several legal actions it is pursuing against Qualcomm.

In addition to a number of other patent cases — including one in which a jury and judge awarded it $39.3 million in damages — Broadcom has asked regulators to investigate anticompetitive behavior by its larger rival in connection with the standards-setting process that resulted in Qualcomm’s technology being broadly embraced by the mobile industry for enabling 3G mobile networks.

Qualcomm also faces patent claims from the world’s largest handset maker, Nokia.

While possibly temporary, the victory may help restore industry confidence in the Qualcomm’s patent position across the mobile spectrum, Gartner analyst Alan Brown told the E-Commerce Times.

The ban could have reduced the sales of some 3G phones significantly, with consumers quickly embracing options that remained available.

“This case is part of a growing series of intellectual property disputes that threaten to disrupt businesses and delay the introduction of new technologies and services,” Brown said.

While regulators and courts may be forced to get involved more often to keep technology from being held back, he added, “the best solution is usually an out-of-court-one.”