Banned: New Phones with Qualcomm Chips

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The partial ban could be no less a hardship for handset makers. The ITC's decision stands to interfere with sales of Motorola's much-hyped RAZR2 phone, a successor to the best-selling slim RAZR, says Larry Harris, an analyst with Oppenheimer & Co. "The impact is less severe than a blanket restriction," he says. "But it has the potential to hold back progress." RAZR2 was scheduled for introduction in the U.S. in July to revive Motorola's flagging sales.

Search for a Solution

At issue is software designed to extend battery life in chips while users make out-of-network calls. In October, an ITC administrative judge made an initial ruling that Qualcomm violated the Broadcom patent covering that feature and the commission later affirmed the decision (see BusinessWeek.com, 10/11/06, "Qualcomm's Temporary Reprieve").

So what is Qualcomm's recourse? Qualcomm will first ask a Federal Circuit Court to stay the decision, pending appeal. Verizon Wireless will file its own stay request. Qualcomm and some of its customers, including Verizon Wireless, have also asked President Bush to veto the commission's decision—though analysts say that's a long shot. "The President is very unlikely to do something," says Charles Schill, a partner at law firm Steptoe & Johnson. In the past 600 cases going through the commission, the President chose to get involved only five times.

As for handset makers, they could futz with Qualcomm's chips so they no longer infringe on Broadcom's patent, says Lyle Vander Schaaf, partner at law firm Bryan Cave and a former ITC attorney. Then the chips and the handsets would be allowed to enter the country, he believes. That solution could take months, he adds.

Then There's Licensing

Another possible solution: Qualcomm could come up with an alternative method for the feature covered by the Broadcom patent. During a conference call following the ITC announcement, Qualcomm didn't provide any information on the timing of workaround development.

Of course, Qualcomm could also start licensing Broadcom's patent and end the court fight (see BusinessWeek.com, 5/30/07, "Qualcomm Under Fire"). "We simply want to be adequately compensated for the use of our intellectual property," Broadcom said in a statement. "To that end, we have made it clear to Qualcomm that we are open to discussions regarding the potential for licensing of our patent. The ball is in Qualcomm's court."

Qualcomm executives on the call indicated they weren't keen on playing. "What they are seeking are terms that would be destructive to our business model," Qualcomm General Counsel Louis Lupin said. But if the company can't devise a workaround and loses on appeal, holding out may prove more harmful still.

Kharif is a reporter for BusinessWeek.com in Portland, Ore.