ITC orders ban on new 3G handsets with Qualcomm chips: Ruling ‘a shocker,’ potentially detrimental to entire wireless industry

In a potentially serious blow to Qualcomm Inc.’s chipset and IP-licensing business, the U.S. International Trade Commission ordered a ban on new 3G handsets bearing Qualcomm chips that infringe on a Broadcom Corp. patent. The ruling could also have wide-ranging effects on the U.S. wireless industry.
It was not immediately clear what brands and models of mobile handsets would be affected by the order, which applies to handsets imported after today that contain the offending Qualcomm chip.
In a conference call after the decision was released, Qualcomm executives appeared to indicate that the detailed text of the ITC’s majority opinion in the case would have to be reviewed to determine which handset vendors and handset models would be affected. That could provide a better sense of how the ITC decision may affect Qualcomm’s core financial results.
The order-characterized as a “downstream remedy” because it addresses not only the offending chips but products containing them-exempts handsets with the offending chips available until today or the same models available after today. The ITC’s majority found that, because the offending chips are incorporated into handsets overseas, then imported, banning the chips alone would not provide a material remedy to Broadcom.
Broadcom declared itself “pleased” and “gratified” at the ITC decision.
“We have made it clear to Qualcomm that we are open to discussions regarding the potential for licensing of our patent,” Broadcom said in a statement. “The ball is in Qualcomm’s court.”
Qualcomm’s CEO Paul Jacobs said that the ITC decision was “wrong” and that his company would take two legal steps: it would immediately seek an emergency stay of the ITC order from the federal circuit court of appeals and, secondly, it would seek a presidential veto of the ITC decision.
Jacobs characterized the ITC decision as a blow to disaster preparedness, third parties in the wireless industry and consumers. He also said that “tens of millions” of handsets may be affected by the decision.
Will Strauss, principal at Forward Concepts, a semiconductor market analysis firm, described the ITC’s decision as “a shocker.”
“It’s shocking that the government would do that, regardless of the infringement issue,” Strauss said. “This could be detrimental to the entire U.S. wireless industry.”
Strauss said that the two likeliest handset vendors to take a hit from the order would be Samsung Electronics Co. Ltd. and LG Electronics Co. Ltd., whose products are featured in handset portfolios at Verizon Wireless, Sprint Nextel Corp. and Alltel Corp., three of the nation’s five largest network operators. He was not as certain about possible impacts to Motorola Inc.
Strauss said that a “workaround”-an attempt by Qualcomm to find a technical alternative to using the Broadcom patent in question-would take time. Meanwhile, the ITC decision might prompt renewed efforts between the two companies to reach a cross-licensing agreement.
“Like all things in this industry, money can solve a lot of issues,” Strauss said.
According to media reports, Verizon Wireless-perhaps the largest U.S. carrier potentially affected by the order-will join Qualcomm in asking for a presidential veto.
Qualcomm’s conference call featured a handful of the company’s top executives and many leading industry analysts, reflecting the widespread concern that the ITC order would disrupt Qualcomm’s business and possibly have far-reaching effects on the entire industry.
Qualcomm’s stock was up slightly in after-hours trading on the news, to around $41.80 per share. Broadcom’s stock was also up slightly, to $30.50 per share.