UPDATED: In newest litigation, Broadcom takes on Qualcomm’s business model

In what appears to be a potentially far-reaching case, Broadcom Corp. has asked a U.S. District Court to render a declaratory judgment that rival Qualcomm Inc.’s patent licensing practices amount to patent misuse.
Further, Broadcom contended that Qualcomm’s practices in the U.S. market render the latter’s patents “exhausted” and unenforceable.
Broadcom based its request on a recent U.S. Supreme Court ruling on the scope of the patent exhaustion doctrine in Quanta Computer Inc. v. LG Electronics Inc.
However, Qualcomm took issue with the item.
“The Supreme Court decision in Quanta does not support Broadcom’s theories,” said Alex Rogers, senior VP for legal counsel at Qualcomm. “The complaint argues theories that are incorrect, in light of ‘Quanta.'”
Licensing its intellectual property is a major source of revenue for Qualcomm. Broadcom’s apparently fundamental attack on Qualcomm’s practices come on the heels of a U.S. Court of Appeals ruling last month upholding a jury verdict from last year finding that Qualcomm had violated two of Broadcom’s patents.
Broadcom’s complaint was filed Wednesday in the U.S. District Court for the Southern District of California in San Diego, according to the company.
Broadcom asserted that Qualcomm uses its patent-licensing practice – patents which Broadcom argued are “exhausted” – to control post-sale use of products in the wireless industry, resulting in a double recovery of royalties. That resulted in “a financial windfall” for Qualcomm and “brought harm” to the industry and consumers, according to Broadcom’s complaint.
According to analyst Cody Acree at Stifel Nicolaus, quoted by Forbes.com, Broadcom is attacking Qualcomm’s practice of charging 4% to 5% royalties on its IP licenses to other chip makers and another 4% to 5% on that IP from the handset vendors who use those chips. If the second charges are found improper by the courts, Qualcomm would have to raise its royalty rate on its first charge to chip makers, giving Broadcom a possible competitive advantage.
Rogers said that Qualcomm’s licensing agreements expressly preclude “exhaustion,” thus its royalty charges to handset vendors are proper.
“The other issue Broadcom is trying to press is that it’s improper for Qualcomm to have these restrictions (that exclude patent exhaustion),” Rogers said. “The Supreme Court didn’t say that in Quanta. There’s no support for that position in that decision. It is proper and it’s been proper for years.”
Rogers said that Qualcomm is considering how to respond and would do so in coming months. In a return shot across Broadcom’s bow, the Qualcomm attorney said that Broadcom is following a strategy of using litigation to gain traction in the baseband chip business, rather than delivering quality products.