YOU CAN’T HAVE A HOLIDAY PARTY without a potent punch bowl for all comers.
The news from last week: Some of the latest models of 3G handsets will indeed appear in the United States in time for the retail party just getting under way.
Specifically, the Court of Appeals for the Federal Circuit’s stay of a ban on the importation of new 3G handsets with Qualcomm Inc. chips that infringe on a Broadcom Corp. patent meant that top carriers and handset vendors could proceed with holiday sales, the hottest retail period of the year.
That took Qualcomm temporarily off the hook with its customers and smoothed the way for AT&T Mobility, T-Mobile USA Inc., Samsung Electronics Co. Ltd., Motorola Inc., LG Electronics Co. Ltd., Sanyo Fisher Co. and Kyocera Wireless Corp. to import and sell the latest 3G handsets. Verizon Wireless and, possibly, other carriers (Sprint Nextel Corp. isn’t talking) cut their own deal with Broadcom to overcome the ban.
The decision also marked the beginning of a federal appeals court review of whether the U.S. International Trade Commission had the power to ban products by third parties other than the party found to infringe a patent.
Qualcomm counsel Alex Rogers declared the company was pleased that third parties would not suffer the ban while Qualcomm pursued an appeal of the ITC’s finding of infringement.
For its part, Broadcom took a page from Qualcomm’s playbook on spin to declare that the circuit court had denied several of Qualcomm’s requests, while acknowledging that “other parties” would be granted a stay of the ban, pending the appeals process. Broadcom then piled on with a review of six complaints it has pending against its rival before courts and regulatory bodies.
But what does it mean?
Analysts were mixed on the relevance of last week’s lifting of the ban.
“We view the ruling positively for Qualcomm as it allows U.S. handset sales pending appeal and potentially reduces Broadcom’s leverage if (the Federal Circuit finds) that the ITC’s scope is limited only to Qualcomm,” UBS analyst Maynard Um wrote in a note to investors .
For American Technology Research analyst Mark McKechnie, the stay merely increased his confidence in his earnings guidance for the last quarter of the calendar year, though he noted (as did Broadcom) that “material legal issues remain.”
“The near-term prognosis is good for everyone, even Broadcom, which isn’t losing anything, it just isn’t causing others to be hurt,” said Mike Thelander, CEO of industry research firm Signals Research Group L.L.C. “Longer term, this action has no significance since it doesn’t vindicate either side’s arguments regarding licensing fees. Qualcomm needed some good news.”
From the bench
On the decision itself:
The Federal Circuit agreed with Qualcomm’s argument for a stay of the ban imposed in June by the ITC, noting that the ban unduly hurt “downstream users” of Qualcomm’s products-that is, the handset vendors and their customers, the wireless carriers. A ban on the importation of Qualcomm’s chips and its “redesigned chips” (read: the so-called “work around”) remains in place. But the company does not import its chips; they are incorporated into handsets overseas, and the handsets are imported.
The ITC had sought to punish Qualcomm for infringing on a Broadcom patent by limiting the importation of Qualcomm’s offending chips through limits on the importation of handsets containing them.
ITC tightrope
The balancing act for the ITC-which holds sway over issues relating to the importation of products-was to take some action that would punish Qualcomm, while avoiding undue harm to downstream users. Thus the ITC crafted the limited ban on 3G handsets not introduced by June 7, when the ITC handed down its remedy in the case.
If the Federal Circuit’s review of the case confirms the ITC’s infringement finding, the ITC’s remedy-the ban on importation of 3G handsets introduced after June 7-stands as well, according to Broadcom.
Expected mixed reaction
According to Qualcomm spokeswoman Bella Alabanaza, the Federal Circuit typically takes nine to 18 months to complete its review of a case, but the company would not speculate on the timeframe in this particular case. Qualcomm reiterated its confidence that it would prevail in the appeal. If Qualcomm’s appeal succeeds, the ban is moot. If Qualcomm’s appeal fails, the ban is reinstated.
For its part, Broadcom focused on what did not happen.
“U.S. Appeals Court Denies Qualcomm Request to Stay ITC Order” declared the company’s statement on the upper deck and, below, “Appeals Court Grants Stay Request as to Third Party Interveners.”
Broadcom’s statement went on to point out that Qualcomm’s request for a stay of the ban on importing its chips was denied, a classic term used in legal circles but also often heard on neighborhood basketball courts when a shot is blocked. The term was used three times in the headline and first paragraph.
Broadcom reiterated that the stay of the ban would be lifted; in other words, that the patent-infringement finding by the ITC and its ban on the importation of handsets with the infringing chip would be restored.
Broadcom’s summary of outstanding legal and regulatory cases it is pursuing against Qualcomm (two patent-infringement cases, four anticompetitive complaints), noted that Qualcomm had either lost or withdrawn all of the patent-infringement cases it has brought against Broadcom.
Back to the table?
The outcomes of the Federal Circuit appeal and the other six cases, of course, may simply send the two parties back to the negotiating table for a cross-licensing agreement.
Such an agreement, if struck, would likely seek to permit Broadcom to compete more effectively in the W-CDMA market using Qualcomm patents and for Qualcomm to pursue its business without litigation over the use of Broadcom’s patents.
Wins or losses in the pending cases presumably would simply strengthen or weaken the two rivals’ respective positions in those negotiations.
But with the resolution of legal and regulatory processes measured in months and years, one is tempted to recall Yogi Berra’s oft-quoted remark:
“It ain’t over til it’s over.”
