Qualcomm Plans Appeal, Readies Workarounds for Santa Ana Injunction
Qualcomm has replacement WCDMA chipsets to comply with part of a New Year’s Eve injunction, and is developing workarounds for other products a Santa Ana jury last May determined to infringe three Broadcom patents, Qualcomm said Wednesday. Late Monday, the Santa Ana U.S. District Court banned Qualcomm from making, using, selling and importing the infringing products. However, to lessen the blow to carriers and handset makers, the court stayed the injunction until Jan. 31, 2009, for chips sold before the May jury ruling. Qualcomm plans to appeal to the Federal Circuit U.S. Appeals Court.
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Qualcomm must pay Broadcom royalties until the 20-month stay sunsets. District Judge James Selna ordered Qualcomm to pay a 6 percent royalty for a video compression patent and a 4.5 percent royalty for a patent allowing EV-DO phones to operate across two networks. Qualcomm must also pay royalties for a patent covering push-to-talk VoIP; the rate must be negotiated by the parties by Feb. 29, Selna said. First payments are due March 31 and will be paid quarterly.
The stay doesn’t cover four WCDMA chips that infringe the video compression patent because “in contrast to the CDMA market, there are numerous competitors in the WCDMA market,” including Nokia, Texas Instruments and others, Selna said. “Drop-in replacements” for the immediately enjoined chips are available and will be added to handsets by the end of Q1 2008, Qualcomm said. Qualcomm also is “continuing” development of workarounds for infringing CDMA chips the stay applies to, it said. All workarounds are subject to Broadcom legal challenge, and Broadcom probably “won’t waste a lot of time” taking action against the WCDMA workarounds, said Stifel Nicolaus analyst Rebecca Arbogast. Perhaps expecting challenge, Arbogast said, Qualcomm told press and investors in a morning conference call it recommended the Santa Ana judge appoint a “special master” to aid in determining whether workarounds still infringe.
The injunction has implications for all carriers and handset makers using Qualcomm chips in the U.S. except Verizon Wireless, which is protected by a previous Broadcom deal (CD July 20 p11). AT&T is affected by the immediate injunction on WCDMA chips, but could use Qualcomm’s workarounds. “We're studying the order, and we're looking at all of our options - technical, legal and commercial - to ensure we can continue to provide the latest handsets and services to our customers,” an AT&T spokesman said.
Sprint Nextel uses infringing Qualcomm EV-DO and push- to-talk chips covered by the stay. QChat, Sprint’s CDMA- based successor to Nextel’s push-to-talk, is still planned for launch early this year, a Sprint spokesman said. “We don’t anticipate any interruption or delay in QChat deployment due to this dispute,” he said. However, the royalty on push-to-talk chips could increase the price for Sprint, Pali Research said.
It’s unclear how T-Mobile is affected. Only the infringing WCDMA chips affect GSM carriers, but T-Mobile may not be impacted since its 3G rollout is still in progress. A spokeswoman didn’t comment by our deadline.
Motorola, LG and other handset makers “with heavy emphasis in the U.S. CDMA market should be more affected” than Nokia, Sony Ericsson and others “who focus more on GSM and don’t use Qualcomm chips even in their WCDMA products,” said Current Analysis’s Avi Greengart. Motorola is reviewing the order, a spokeswoman said. LG declined comment; other manufacturers we contacted didn’t return requests.
Qualcomm plans to appeal the infringement decision to the Federal Circuit U.S. Appeals Court. The process is “likely to take several months to a year,” Stifel Nicolaus said in a note. Meanwhile in Santa Ana, Qualcomm “expects it will require further clarification from the court on various aspects of the ruling, including the effect of Verizon Wireless’ existing license agreement with Broadcom,” it said. Qualcomm is also likely seeking clarification on whether the royalty rate is based on the price of the handset or the chip, and the “full scope” of “who’s covered” by the order, Arbogast said.
Qualcomm will have a “tough time” reversing the injunction in the Federal Circuit, Arbogast said, saying the district judge did a “thorough job” in writing his opinion. The “most realistic, optimistic” outcome would involve the Federal Circuit sending the case back to the district court for a new trial, she said. In its appeal, Qualcomm will likely focus on “underlying liability” issues and argue that the initial determination and damages award didn’t properly take into account the Federal Circuit’s In Re Seagate decision, the order that led to a November Santa Ana order killing a jury-determined double damages award (CD Nov 26 p1), Arbogast said.
The U.S. Patent Office is re-examining one infringing patent’s validity, Qualcomm said. A spokeswoman didn’t give specifics. That might give Qualcomm relief “eventually,” but it’s “unlikely” the re-exam will conclude before the injunction takes effect in 2009, Arbogast said.
Broadcom said it was “very pleased” with the ruling. “Broadcom should not have to compete against companies that use Broadcom’s own patented technology against us,” said General Counsel David Dull. Broadcom investors should also celebrate, said American Technology Research’s Shaw Wu. The injunction gives Broadcom “additional leverage” in negotiations, ensuring that “it gains favorable cross- licensing terms,” the analyst said. Also, “potential customers that were reluctant to work with Broadcom for fear of lawsuits from Qualcomm may now feel freer” to do so,” he said. “We are already seeing evidence with Nokia and Samsung working with Broadcom on future platforms.”