Qualcomm to Appeal to Bush to Dismiss Phone Ban

Mobile phone technology maker Qualcomm plans to ask the White House to step into a trade and patent dispute with rival Broadcom, hoping the Bush administration will overturn a trade ruling that could ban new models of third-general mobile phones containing the company’s technology from being sold in the U.S.

The International Trade Commission (ITC) issued a ruling late Thursday banning the future import of new phone models containing chips made or designed by San Diego-based Qualcomm.

The order came in response to longstanding complaints from rival Broadcom that Qualcomm was infringing on its patents. However, any devices already in the U.S. prior to its June 7 effective date could be sold. Qualcomm can still import its own chips made overseas, but not once they are installed in devices.

Presidential Veto?

Qualcomm will ask the Bush administration to overturn the ruling, even as it pursues other legal avenues, the company said, including filing a request for a stay in the Federal Circuit of the U.S. Court of Appeals.

A presidential veto of the order — a rarely used legal move — is necessary for homeland defense and public safety reasons, Qualcomm CEO Paul Jacobs said. Since many public safety agencies use phones containing the company’s chips, the order could “jeopardize America’s disaster preparedness,” he added.

“This decision does immediately affect third parties who were not even permitted to appear in the infringement proceeding,” Jacobs noted. “We believe the commission has not afforded manufacturers and operators, who will bear the brunt of this order, an adequate opportunity to defend their interests.” That the order will “limit consumer choice and access to mobile broadband services, be harmful to operators, manufacturers and the economy, and pose risks to public safety communications,” he added.

Win for Broadcom

Qualcomm shares rose in Friday trading after falling ahead of the expected ruling Thursday. In late morning action, Qualcomm shares were up 1.7 percent to US$41.69. Broadcom shares, meanwhile, were up 1.4 percent to $30.50.

The ITC had announced late last year that it would take six months to craft a remedy in the case, after finding that some Qualcomm chips and chipsets infringed on technology patented in the U.S. by Broadcom, primarily technology relating to saving battery power in handsets.

The ITC noted that while its remedy ruling — which came in the form of a 4-2 vote, with two members supporting more limited relief — takes effect immediately, it becomes final after a 60-day waiting period, during which time the U.S. Trade Representative (USTR) can step in to veto the decision.

USTR spokesperson Gretchen Hamel told the E-Commerce Times that the trade representative would have comment on the case, but said it was standard practice to review all such decisions in a timely manner.

Qualcomm suggested the appeals court could issue a stay within a matter of days.

The chips and chipsets in question include those used in cell phones that operate on 3G networks that use EV-DO (Evolution-Data Optimized) and WCDMA (Wideband Code Division Multiple Access) technology. Most major carriers operate such networks and Motorola, Samsung and other phone makers provide compatible handsets.

Tens of millions of phones could be impacted, but the ITC did limit the scope to exclude from the ban models that are the same as those sold or available before the effective date of the ruling.

Ball in Qualcomm’s Court

In its ruling, the ITC said a broader order would have had adverse impacts on the economy, while one that covered only chips not yet installed in devices would not offer any significant relief to Broadcom.

Broadcom would be willing to talk to Qualcomm about licensing, the company said. “The ball is in Qualcomm’s court,” it said.

Qualcomm worried the ITC’s order could have a chilling effect on innovation in the mobile phone space, the company said, with many carriers now likely planning new models for rollout in the holiday season, plans that may have to be re-examined in light of the ruling.

Qualcomm’s intellectual property is the engine that has driven its success over the past decade, to the point where many companies claim the company manipulated standards-setting process to get its solutions adopted as industry standards.

The importance of mobile chipsets has risen dramatically, with the chips dictating everything from the price of a phone to its overall performance capabilities, Gartner analyst Alan Brown told the E-Commerce Times.

“Qualcomm staked out ground in 3G early and it has reaped the benefits as the market came around,” he said.

Some Good News

Broadcom has been gaining the upper hand in court proceedings of late, winning a $19.6 million judgment against Qualcomm in a California civil case last month after a jury found that three of Broadcom’s patents were infringed on by Qualcomm. Qualcomm is also feuding with Nokia, with each company claiming the other has pilfered technology.

Even as it scrambled to react to the adverse rulings, Qualcomm moved to reassure investors, announcing that demand in the current quarter was stronger than previously expected, opening the door for the company to boost guidance, according to analysts.

It would likely take some time for Qualcomm to feel the full impact of the ban as well, with third parties such as handset makers and resellers likely feeling the pinch first.

“Generally, we think there will be little actual impact on the handset market as a result of this decision,” Banc of America Securities analyst Tim Long said in a research note. “We see the decision as a middle ground that gives Qualcomm time to appeal and implement its workaround without impacting near-term business.”