Qualcomm faces legal troubles here and abroad
The company whose technology powers more than half of the nation’s cellphones is mired in legal woes, and court rulings in its cases could ultimately lead to higher cellphone bills.
San Diego-based chip maker Qualcomm Inc. goes to trial today in Santa Ana in a patent dispute while a federal judge in San Diego ponders what to do with a jury finding that the company abused a process for setting technology standards.
Both cases involve rival Broadcom Inc. of Irvine, which wants the International Trade Commission to ban imports of handsets containing Qualcomm chips that infringe Broadcom patents. The commission, which has found Qualcomm liable in that patent infringement, is expected to rule by May 25.
Broadcom isn’t the only company that wants a piece of Qualcomm. Nokia, Ericsson, NEC Corp., Texas Instruments Inc. and others contend that Qualcomm isn’t playing fair.
Investigations of Qualcomm are pending in Europe and South Korea.
“Litigation comes and goes in cycles, but this phase is the most active we’ve ever been in,” said Louis M. Lupin, Qualcomm’s general counsel.
The outcome of the legal action here and abroad could push competitors out of the market, slow the introduction of features and, inevitably, raise the cost of basic service and handsets.
“Patent cases used to be between companies that sold only small components of finished products, and customers never felt anything,” said Jason Schultz, a staff attorney for the Electronic Freedom Foundation, a trade group.
“Now we’re talking about patent cases that threaten to shut down services, especially ones that allow people to communicate.”
Qualcomm’s CDMA technology -- for code division multiple access -- powers networks owned by Verizon Wireless, Sprint Nextel Corp. and Alltel Corp., the nation’s second-, third- and fifth-largest cellphone carriers.
Although nearly 60% of U.S. cellphones operate on CDMA, it’s a small player worldwide, where global system for mobile communications, or GSM, technology controls 84% of the market, according to statistics from the five major cellphone companies and Informa Telecoms & Media research group in London.
Both technologies have advanced to the third generation, or 3-G, and that’s where Qualcomm has run into a buzz saw, because its 3-G chips are also used in GSM phones.
The battles flow out of committees established by trade groups to set technology standards. That creates a monopoly for the patent holder of the technology picked as the standard, so standards committees typically require that patent holders charge royalties that are fair, reasonable and nondiscriminatory.
Most of the GSM players “have agreed to cross-license each other’s patents and pay for the use, but Qualcomm has not agreed,” said Charles Golvin, an analyst at Forrester Research Inc. “It underlines the viciousness in the negotiations for setting standards and paying royalties.”
Broadcom contends in various state and federal lawsuits that Qualcomm uses unfair and illegal tactics, such as failing to disclose it has patents on technology standards being considered.
“They stack the committees with paid consultants. They withhold patents. They say they will license on nondiscriminatory terms, but then don’t do so,” said David Rosmann, Broadcom’s vice president for intellectual property litigation. “Qualcomm is trying to drive out competition and charge high royalties.”
Qualcomm denies that it has acted improperly in standards committees or that it has infringed Broadcom patents.
“Part of what’s going on is clearly a battle between the entrenched [GSM] guys who aren’t necessarily interested in innovation because that is bad for them; it causes disruption,” Qualcomm’s Lupin said. “But it’s also about who’s going to pay royalties and how the pie is going to get divided up.”
Qualcomm accused Broadcom of infringing two of its patents but lost that case in San Diego, where a jury issued an advisory verdict saying that Qualcomm had acted unfairly. A judge is looking into whether Qualcomm should face sanctions.
Today, in Santa Ana, Broadcom takes its turn in a federal trial in its suit accusing Qualcomm of infringing three of its patents, including two that involve base-band chips, the brains of cellphones.
Broadcom already has won a ruling from the International Trade Commission that Qualcomm infringed patents, which are also the subject of another federal court case pending in Delaware.
“I think all this will be settled,” said analyst Alan Brown of Gartner Inc. “It may be in court or in arbitrations, but in three or four months, there will be agreements reached.”
Business customers and cellphone carriers, Brown said, are watching the fights but will put up with only so much.
“There will be a lot of pressure put on the companies to settle,” he said.
