ITC Bans Qualcomm Chip Imports

WASHINGTON – The International Trade Commission voted late on June 7 to ban the import of wireless devices that use Qualcomm chips and chip sets that infringe on certain Broadcom patents from entering the United States.

The ban affects cell phones, PDAs, broadband cards and other similar devices intended for consumer use. However, the ITC excluded existing models of such devices from the ban, allowing cell phones already on the market to continue to be sold.

Still up in the air is exactly how this ban will take place, and whether it will take place at all. Qualcomm announced in a press release that it would appeal; Verizon has announced that it would attempt to get the White House to overturn the ban; and both companies involved have said that they are negotiating a cross-licensing deal.

"Its a surprising decision in the way they chose to balance the various interests the parties were pushing," said Smith Brittingham, a partner with the Washington, D.C. law firm of Finnegan Henderson Farabow Garrett and Dunner. Brittingham is a former investigative attorney with the ITC.

"I had thought that the commission would choose to exclude some number of cellular phones and handsets, but the way they chose to divide the baby was by letting in older handsets while keeping out new handsets."

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Brittingham said that Broadcom didnt exactly get what the company was asking for. "The commission chose this grandfathering method. This is not a traditional way for the commission."

Brittingham said that the ban will be a lot better for Broadcom than for Qualcomm because it affects a larger number of devices than what was originally sought. Brittingham also noted that theres a 60 day period in which the president can approve or overturn the ITC decision. He also noted that companies can import new devices that infringe by paying a 5 percent bond on those devices during that period.

"Qualcomm has already asked the commission to stay the order in a petition last week," Brittingham said, noting that the commission is unlikely to stay their own order. "They will appeal to the circuit court to get the get the federal circuit to stay the commissions exclusion order while the appeal is going on."

Brittingham said both approaches are long shots. He said that another path is to try to lobby the U.S. Trade Representative, who has authority to act on ITC decisions.

"There have been only a handful of presidential disapprovals in ITC cases. It hasnt happened since 1985," Brittingham said. "This is clearly a much more high profile case. I would wager to say that the possibility of a presidential disapproval is much more significant in this case."

Brittingham said that the usual response in such cases is a cross license, which he expects to see happen here. Analyst Craig Mathias, who is a principal at Farpoint Group, agrees and said that the next move is up to Qualcomm.

"The burden is on Qualcomm in how to handle this case," Mathias said. "Qualcomm hasnt shown much interest in settling. Maybe this will be the encouragement they need."

Mathias noted that there are going to be a lot of companies upset by this, and that this is not going to be a meltdown for Qualcomm. "They can easily solve this by raising prices. This will be settled by cross licensing of patents. This is Qualcomms negotiating strategy, he said.

Mathias said that Qualcomm can create problems for itself if it doesnt settle with Broadcom soon enough. "The real danger is that if Qualcomm continues to be obstinate then the phone manufacturers will design without Qualcomm. Qualcomm cant let that happen." Then he added, "Hey, they lost. They should fess up and move on."

One way or the other, Mathias thinks some sort of settlement is a must, and that its silly to drag this out because it gives too much uncertainty for customers.

"My belief is that they will ultimately settle, sooner rather than later. The markets hate uncertainty. That should be unacceptable to any leading player today," he said.

Click here to read more on the legal tangles between Broadcom and Qualcomm.

Intellectual property attorney Bruce Sunstein agrees. "Over the long term, both companies need to make a deal," Sunstein said. "Broadcom needs access to 3G and Qualcomm doesnt need to spend its life defending patent cases."

Sunstein is chairman of the Patent Group and partner at Bromberg and Sunstein in Boston. He pointed out that Qualcomm has no option but to share its technology with Broadcom, which should make a cross-licensing deal easier to accomplish.

"Qualcomm participated in the standards making in WCDMA. They have to commit to offering licensing to all on a reasonable basis. Of course the view of reasonable is in the eye of the beholder," Sunstein said.

There are more questions than what constitutes reasonableness, said Bart Showalter, chairman of the IP section of law firm Baker Botts, in Dallas.

"The reason this case is important is that its not just the chip sets, specifically functionality that lets these phones talk to 3G," Showalter said. "The real issue is how far does that exclusion extend to the products that contains those chip sets? The chip sets infringe, so how much are we going to exclude downstream products?"

Showalter said that the ITC has answered that question through its order to exclude any new device containing infringing chips or chip sets. However, he said that the courts may not agree with the ITC, and that this could be critical in Qualcomms request for a stay pending its appeal of Broadcoms patent suits.

"Whether theyre going to be successful depends on whether the grandfathering is enough to protect the public interest," Showalter said. "The federal circuit, as we know, often has a different view of what a claim means. The federal circuit often results in overturning of district court actions."

Showalter noted that the ITC order significantly affects EvDO, and may affect WCDMA.

Next page: Resolution remains uncertain.