Judge Rules Against Qualcomm in Patent Case, but Won't Halt Phone Sales

An administrative law judge on Tuesday said Qualcomm Inc. (QCOM) had infringed a Broadcom Corp. (BRCM) patent, but he stopped short of banning U.S. sales of cell phones with Qualcomm chips.

Qualcomm shares rose as much as 4.5 percent after the judge said he would not recommend Broadcom's request for a ban on the sale of phones that include Qualcomm chips. Broadcom shares fell more than 3 percent.

Analysts said investors, who had pushed down the stock recently on concerns about the case, were relieved because the sale of phones with Qualcomm's chips were not banned.

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"Anything outside of an injunction on cell phones doesn't change the landscape for Qualcomm," said Stifel Nicolaus analyst Cody Acree. But he noted the case was continuing.

"We're still in the very early stages of what this may turn into between those companies," said Acree. The companies have several other lawsuits outstanding between them.

Broadcom had asked the U.S. International Trade Commission to impose a ban on U.S. sales of certain Qualcomm chips and high-speed wireless cell phones that include those chips.

The determination by Administrative Law Judge Charles Bullock is subject to review by the full commission and could ultimately be appealed in federal court.

The commission is not expected to make its final ruling until February 2007.

The judge said Qualcomm had infringed one Broadcom patent for wireless chips but had not infringed two others.

Qualcomm plans to ask the ITC to reject the recommendation on the patent infringement. But it also plans to explore the possibility of making a software change to replace the cell phone feature in question, which helps stop the battery from draining when a cell phone is out of network coverage, it said.

"One alternative would be to eliminate the functionality or to replace it with something better," said Qualcomm general counsel Lou Lupin. "If we do that, maybe the whole dispute goes away."

Qualcomm, the dominant supplier of chips for cell phones based on CDMA, the most widely used U.S. cellular technology, has also filed lawsuits against Broadcom. It also designs chips based on W-CMDA, a popular technology in Europe.

Qualcomm shares have lost about a third of their value since May on concerns about the Broadcom case and other legal disputes Qualcomm is involved in. It is also in negotiations with Nokia (NOK), the world's biggest cell-phone maker, about a licensing agreement that expires next year.

Broadcom and Nokia are also part of a group of six big companies that complained to the European Commission last year about Qualcomm's competitive practices.

Broadcom, which has another 15 patent infringement claims against Qualcomm, said Bullock's determination "validates (its) decision to challenge Qualcomm's illegal conduct."

It said it would aggressively enforce its rights going forward.

Broadcom and Qualcomm met with a mediator in a California court last week but failed to reach a settlement.

Some analysts believe the ITC recommendation could help resolve the companies' disputes, but Lupin would not say if it would move them any closer to a settlement.

"I can't speculate. It's part of a tapestry of much larger issues and it doesn't touch on many of the other issues," he said.

Broadcom has accused Qualcomm of infringing 18 patents and Qualcomm has accused Broadcom of infringing 10 of its patents.

Qualcomm shares closed up 83 cents, or 2.29 percent, at $37.07 and Broadcom stock finished down 79 cents, or 2.67 percent, at $28.80 on Nasdaq after a day of heavy trade.