Qualcomm faces partial phone ban

A federal patent ruling Thursday threatens to put a crimp in Christmas sales of next-generation cellphones that wireless carriers may be counting on late this year -- and beyond -- to spur sales.

The U.S. International Trade Commission in Washington banned the import of new mobile phones containing Qualcomm Inc. chips that infringe patents held by rival Broadcom Corp. Handset models that were being imported as of Thursday can still be imported, but the industry’s constant race to release hot new gadgets makes that small consolation for phone companies.

“It’s bad for the industry and it’s bad for consumers,” said Nancy Stark, a spokeswoman for Qualcomm customer Verizon Wireless. “It will freeze innovation.”

The ban has no immediate effect on consumers or the three main carriers -- AT&T; Inc., Verizon Wireless and Sprint Nextel Corp. -- using the higher-speed Qualcomm chips. Current models of BlackBerrys, BlackJacks and other multifunction smart phones can still be imported and used.

But it would halt Christmas-time imports of any new handsets containing Qualcomm chips that violate Broadcom’s patented power-saving technology.

Neither Qualcomm nor the carriers would say how many new phones with the offending chips were in the pipeline. Verizon Wireless has said that nearly all new phones contain those chips, and Sprint has said it has plans to import about 5 million smart phones this year with the Qualcomm chips.

Both carriers rely solely on Qualcomm chips for their networks and handsets. AT&T; relies on other technology for its network but has started using Qualcomm chips for its high-speed offerings -- but not for Apple Inc.’s upcoming iPhone.

The commission, in a 3-2 vote, went a step further than a staff recommendation in sanctioning the San Diego chip designer. A Broadcom executive said the commission came up with a careful compromise that gave Broadcom relief but didn’t jeopardize the carriers or the public.

“We think this is a very good order,” said David Rosmann, vice president for intellectual property litigation.

Qualcomm and much of the cellular world, though, condemned the commission’s ruling and vowed to appeal the decision to President Bush and the U.S. Circuit Court of Appeals, a specialty court for patent appeals, in Washington. The president has 60 days to decide whether to veto the decision.

Presidential vetoes and appellate court stays of ITC decisions are rare, but Qualcomm executives said they were confident about winning in both arenas.

“This decision does not protect the public interest or the public safety,” said Paul Jacobs, Qualcomm’s chief executive.

Verizon Wireless also plans to seek a presidential veto and a stay of the order, Stark said.

The order does not bar the soon-to-be-released iPhone. It won’t operate on the so-called third-generation network and won’t have the infringing Qualcomm chips, said AT&T; spokesman Marty Richter.

Those so-called baseband chips, which provide the core of the mobile phone’s increasingly versatile functions, allow customers to use smart phones and other devices to surf the Internet, check e-mail, watch video and listen to music on faster cellular networks.

An ITC administrative law judge had recommended banning only Qualcomm chips, not any handsets that contain the chips. But the majority said such a ban would affect few imports and give “little or no relief” to Irvine-based Broadcom.

The decision is “bad news for Qualcomm” and its wireless carrier customers because they revise and turn over their handset models rapidly, said industry analyst Rebecca Arbogast of Stifel Nicolaus & Co.

“As anyone who has teenagers is painfully aware, there is so much change in the next version of cellphones that they are going to be attractive and will quickly bump up against the life cycle of current handsets,” Arbogast said.

Curiously, the decision could end up helping Qualcomm and hurting Broadcom, said Lyle Vander Schaaf, an intellectual property lawyer in Washington.

That’s because the patent involves a small part of the new phones, and Qualcomm should be able to disable or work around the Broadcom patent easily, he said. But the cost to Broadcom may be its relationships with carriers, who could be angry that it sought a remedy that potentially hindered sales.

“You don’t try to ban imports of your own customers’ products,” Vander Schaaf said.

Broadcom’s Rosmann said that any blame should be laid at the feet of Qualcomm for infringing Broadcom’s patents.

Qualcomm shares added 69 cents to $41.71 in after-hours trading. Broadcom shares rose 34 cents to $30.45.

james.granelli@latimes.com