BRCM Spins Gold From Straw
Wednesday January 2, 10:25 am ET
ByTero Kuittinen, RealMoney.com Contributor
A New Year's Eve ruling hands Broadcom stiff licensing fees for patents infringed by Qualcomm , as well as a hefty injunction cocktail encompassing both EV-DO and W-CDMA in the U.S. phone market. It bodes well for InterDigital and some other intellectual property rights specialists, and continues a streak of legal decisions raising the threat of escalating patent litigation in the telecom sphere.
Broadcom Goes for Broke
So Broadcom gets a 6% licensing fee from Qualcomm chips that use a certain video compression patent and a 4.5% fee from a patent on simultaneous communication between multiple networks. Plus, there is a yet-to-be-determined fee for a push-to-talk patent, an immediate injunction for U.S. sales of W-CDMA chips and January 2009 injunction of sales of certain EV-DO chips. It looks like a huge win at first glance, but it might be somewhat thinner gruel than it seems.
Qualcomm has already announced that it can produce W-CDMA chips bypassing Broadcom patents this quarter. The EV-DO chips using workaround solutions may well be out by late summer. If Qualcomm can switch to chips bypassing Broadcom IPR within two to three quarters, the financial impact of this latest court decision is not going to be huge.
Of course, Broadcom may well claim that redesigned chips don't really prevent infringement of its patents, so there may be a cloud of uncertainty hanging over this issue over the next year. This might motivate Samsung and LG to rethink their W-CDMA chip sourcing, possibly benefiting Texas Instruments .
U.S. Impact
But the U.S. market for W-CDMA phones in 2008 is unlikely to top 12 million units even if T-Mobile gets its 3G project in high gear, which is doubtful at the moment. That's a drop in the bucket in global scheme of things -- already in 2007, W-CDMA phone shipments likely topped 180 million units.
There are two bigger issues here that loom over the near-term impact of this latest court decision that applies only to the U.S. market. Could Broadcom leverage its U.S. legal victories into a string of wins in the big W-CDMA markets of Europe and Asia? And more important, is the U.S. legal environment now so favorable to holders of relatively minor patents that there will be a storm of new litigation against chip and handset vendors?
Broadcom must be aware that it needs IPR from Qualcomm to run its 3G chip business in the future. The leverage it got from the Dec. 31 decision is limited -- Qualcomm has had two years to redesign its EV-DO and W-CDMA chips to bypass Broadcom IPR.
Qualcomm might simply opt to pay licensing fees to Broadcom for calendar years 2007 and 2008 and then segue into using workaround chips in the summer of 2008. That would leave Broadcom with very little negotiation leverage with Qualcomm's IPR. I'm assuming Broadcom is counting on further legal victories in the U.S. or the rest of the world to give it more leverage over Qualcomm. That seems relatively risky, particularly as we are finding out just how much the U.S. legal system values even minor handset patents that can be claimed to have been willfully ignored.
New Legal Landscape
Before the past 12 months, the risk of patent infringement injunctions in the handset market was largely theoretical. Now Broadcom has been able to extract relatively broad injunctions both from ITC and a federal judge in California.
The import-related ITC injunction and the far deeper manufacturing/support/sales ban from California taken together seem to indicate a U.S. legal climate that is far more hospitable to IPR holders than was assumed just a year ago. This could well have a knock-on impact on European decisions, but more important, it is a major incentive for small patent holders to get ultra-aggressive.
This sounds like catnip for companies like Interdigital. The company was recently able to get a favorable ruling on its 2G claim against Samsung, and just before Christmas, it got one of its 3G patents declared as essential in Europe.
This was seen as a minor win in Interdigital's tussle with Nokia , but it is starting to look like minor patent wins might be enough to trigger injunctions and punitive licensing fees, at least in the U.S. courts.
You don't need two dozen patents to get a 5% cut -- just one can be enough in certain circumstances. This sounds counterintuitive, because holders of vast and powerful IPR portfolios (like Qualcomm regarding the W-CDMA standard) get that same 5% or less. There is a good chance that this discrepancy will guarantee a massive new tangle of telecom litigation in 2008 and beyond.
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