Some sense that fortune has finally broken in its favor has Qualcomm Inc. glad for “small victories,” though the company acknowledges it has a heaping plate of legal challenges ahead.
Last month, a federal judge in Santa Ana, Calif., ruled that based on an unrelated but precedent-setting case, Qualcomm had not “willfully” infringed on Broadcom Corp. patents for video compression and therefore was not liable for double the $19.6 million damages awarded in the case.
Also in November, two European court rulings favored Qualcomm on procedural grounds related to charges of patent exhaustion by Nokia Corp. In September, a federal appeals court stayed a ban on the importation of 3G handsets containing chips that the United States International Trade Commission had ruled infringed on Broadcom patents-just in time for holiday sales by Qualcomm’s customers. (The ban itself is under appeal.)
“Procedural correctness” has come into play in these cases, said Bill Davidson, Qualcomm’s senior VP of global marketing and investor relations, last week. That reflects Qualcomm’s argument that some legal complaints by rivals have reflected “improper accusations and improper forums,” he contended.
“At least procedurally, we’re back on a rational basis,” Davidson added.
Court battles
Qualcomm faces numerous court cases in the coming year involving both Broadcom and Nokia and the chip company’s attorneys have characterized the pending outcomes in those cases as playing a major role in crosslicensing negotiations between Qualcomm and the other parties. Cross-licensing agreements, although difficult to reach, typically preclude serial litigation between rivals or in vendor-customer relations. Both Broadcom and Nokia have consistently said that each legal case is based on its individual merits.
Analyst Blair Levin at Stifel Nicolaus in a recent report noted that Qualcomm remains embroiled with Broadcom in the ITC case and that the company is involved in more than a half-dozen legal actions with Nokia around the world. Those cases are slated to be heard, if not resolved, in the coming year.
Davidson said that he had nothing substantive to report on Qualcomm’s long-term effort to negotiate cross-licensing agreements with either Broadcom or Nokia. Davidson said that three arbitrators have been selected to work with Qualcomm and Nokia on reaching such an agreement. The Qualcomm executive also said that his company is eager to have the Santa Ana judge rule on Broadcom’s request for an injunction against the importation of offending Qualcomm chips-expected “any time”-so “we’ll know where we stand.” If Broadcom’s request is granted, it probably will not affect the importation of handsets by Qualcomm’s customers that incorporate offending chips, but might hinder importation of “bare chips” used in research-and-development efforts.
Stock pressure
Asked about the pressures on Qualcomm’s stock value, which analysts have attributed to the company’s “legal overhang” as well as its removal of possible Nokia royalty payments relating to the cross-licensing dispute from financial projections, Davidson said:
“When your business model is questioned, your stock becomes volatile. That attracts a certain type of investor.”
One type is Qualcomm’s longterm, top shareholders, which have since October 2005 increased their position, presumably because they find the depressed value attractive and expect Qualcomm to resolve its legal issues eventually with a concomitant rise in value, Davidson said.
The other type of investor, however, may not be familiar with the wireless industry or the company and simply are “trading on headlines” and the stock’s volatility, the Qualcomm executive said. At times, Davidson said, “our stock price seems to almost reflect a doomsday outlook.”
Davidson said he was heartened by financial analysts’ comments following Qualcomm’s recent analysts’ day presentations, which seemed to reflect that analysts were refocusing on the company’s fundamental value.
“We are seeing our day in the sun,” he said.
