Intel Loses Patent Case Against Broadcom

In their first courtroom showdown, Broadcom Corp. emerged the victor Friday when a federal jury rejected Intel Corp.’s claims that its smaller rival had illegally copied the basic blueprint for two Intel semiconductors.

A nine-person jury in Delaware found, in a unanimous verdict, that Intel didn’t hold a valid patent on one networking chip and that, regardless, Broadcom didn’t violate either patent.

The jury’s verdict means that Broadcom, a major supplier of chips for cable television set-top boxes, can continue shipping millions of dollars worth of its communications chips without the threat of paying hefty royalties or damages to Santa Clara, Calif., semiconductor giant Intel.

Broadcom, which is based in Irvine, would not say how much of its product line was involved in either patent claim. But Intel’s networking claim alone, had it been upheld, could have affected computer communications companies worldwide.

“This is an important victory not just for Broadcom but for the communications and networking marketplaces as well,” said Broadcom co-founder Henry T. Nicholas III, the company’s chief executive.

Intel had been seeking $82 million in damages in the first phase of a lawsuit alleging that Broadcom has infringed five patents as part of a “carefully crafted plan” to build its business using Intel’s patents.

A U.S. District Court judge split the case into two trials to make it more understandable to the jury. No date has been set yet for the second trial, which covers the remaining three patents and Broadcom’s counterclaims that Intel has engaged in unfair business practices and abused industry standards.

Broadcom argued that Intel’s attacks targeted its use of ethernet networking and MPEG video technologies--worldwide industry standards that all makers of such gear are encouraged to follow.

The verdict also “validates the intellectual property” created by Broadcom engineers, said co-founder Henry Samueli, the company’s chief technology officer.

Intel, the world’s largest maker of microprocessors, which run personal computers, has not decided whether it will appeal.

“We’re disappointed,” Intel spokesman Chuck Mulloy said. “We’re going to take a very close look at the jury’s findings. We know we don’t agree with it, but we don’t know what we’re going to do yet.”

Meanwhile, Mulloy said, Intel will prepare for the second trial, expected to start this spring.

The sweeping accusations could threaten much of Broadcom’s sales, which amounted to $1 billion last year.

But Wall Street analysts have not been worried about the lawsuit, viewing the dispute and three other legal actions between the companies as a “grudge match,” part of a fight for market share as Intel ventured into Broadcom’s communications domain.

“Our view from the start was that Intel’s claims didn’t have much merit,” said Mark Edelstone, a Morgan Stanley Dean Witter analyst. “But when you get into a jury trial, you just never know. I do think in this case that justice was done, and it’s nice to see that.”

James Ragan, an analyst at Crowell, Weedon & Co. in Los Angeles, said the verdict reaffirms Wall Street’s belief that Broadcom “has always maintained a strong product house on its own.”

At some point, analysts figure, the firms will settle their remaining differences and allow each to license the other’s technology.

One case was settled out of court a year ago when Intel dropped its effort to block former employees from working at Broadcom. Intel had claimed that Broadcom gained access to trade secrets by hiring three Intel workers.

In a separate patent infringement claim, filed by Intel against a company eventually acquired by Broadcom, the International Trade Commission barred Broadcom from importing the chips at issue. The White House is reviewing that case, as is normal procedure.

Last month, Broadcom filed a federal lawsuit in Texas challenging key components of Intel’s business, saying the company is infringing two Broadcom patents for chipsets that help operate personal computers. That case is pending.

In the Delaware trial, Intel said Broadcom violated 11- and 12-year-old patents on a networking chip and a digital video chip.

Besides arguing that it was just following industry standards, Broadcom also said it could sell the video chips because its customers had licenses from Intel to use them. Broadcom contended that the networking patent was invalid because others had the technology before the patent was issued.

The jury agreed with all of Broadcom’s contentions.

Shares of both companies edged up Friday. Intel rose 70 cents to close at $33.27, and Broadcom rose 82 cents to close at $43.29, both on Nasdaq.