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.”
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.
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.
Resolution Remains Uncertain
For some carriers, the new models can continue to arrive. “GSM carriers that are using someone elses UMTS chips are unaffected,” said Broadcoms Vice President of IP Litigation David Rosmann. He noted that 3G phones using Qualcomm chips, which include all EvDO chips, will be affected by the ban on new devices. There are alternatives in the GSM space, he added.
“I think were very pleased with the decision,” Rosmann said. “It was different from what we asked the commission to do. It goes a long way to stopping all infringements from Qualcomm.”
Rosmann said that Broadcom is ready to talk to Qualcomm about making a deal, but he said hes not sure that Qualcomm is ready. “Theres no way to predict when were going to resolve this. Were willing and ready to discuss a resolution. The balls in Qualcomms court now. Well see if Qualcomm is ready to make progress here.”
Rosmann also said that he doesnt think that Qualcomm has much of a chance in succeeding in its effort to get a stay in enforcing the ITC decision. “I think the ITC struck the proper balance because handsets will still be available. Qualcomm has demonstrated that they are infringing on multiple patents, and the court has found that it was willful. Well certainly oppose any notion that Qualcomm delay this enforcement,” Rosmann said.
Qualcomm noted in a press release that it would appeal the ITC decision by asking the commission to stay its own ruling, and by appealing the U.S. Circuit Court for a stay. No one was available to speak for Qualcomm despite repeated requests.
The companies most affected, Sprint and Verizon Wireless, have yet to release any statement regarding the impact from the ITC decision. However, both companies are certainly affected given their dependence on Qualcomm chip sets for a variety of uses including EvDO. The two major GSM carriers, T-Mobile and AT&T, are also saying little.
However, they are saying something. T-Mobile issued a statement that said, “T-Mobile is disappointed by the ITCs decision to preclude the importation of Qualcomms WCDMA chip technology into the United States. However, we look forward to continuing to work with Qualcomm and our other manufacturers and suppliers to move forward with our plans to bring advanced wireless offerings and technology to our customers.”
A T-Mobile spokesperson noted that only those T-Mobile devices that use Qualcomm chips for UMTS were affected, and noted that the company will work with Qualcomm and other companies to make sure that no infringing chips are included in their devices.
AT&T declined to issue a formal statement. However, a company spokesperson did tell eWEEK that the ITC decision will not affect the iPhone launch planned for June 29 because that phone doesnt use a Qualcomm chip set. The spokesperson said that many of AT&Ts 3G products use the Qualcomm chip set and are affected. The company is studying the ruling and considering its options.
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The bottom line, as always, boils down to how any such ruling affects consumers and the companies that sell devices to them. Jamey Charapp, president of Alternative Communications Consultants in Germantown, Md., is a Sprint Business Partner who sells to enterprise and government clients. Charapp said that he doesnt think the ITC ruling will have any significant impact on his company or his customers, at least in the near future.
“One of the things with the Sprint and Nextel merger is that we would have the ability to provide products on both networks,” Charapp said. “Many customers have known this was coming about and are satisfied with their current handsets.”
Charapp said that his customers are also aware that if they need new products, they can get most of what they need from the Nextel end of the line. Charapp added that with his customers especially, the future isnt in EvDO. “What a lot of lot of customers are looking for is WiMax,” he said.
As a result, Charapp doesnt think that the ITC decision, despite its potential impact on new devices that Sprint might offer, will amount to much for his customers. “The effect is very minimal if any,” he said.
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