Trade panel bans import of some cellphones in Qualcomm chip patent case

By James S. Granelli, Times Staff Writer
2:56 PM PDT, June 7, 2007

In a split decision, a federal agency decided today to ban the import of new cellphones containing Qualcomm Inc. chips that infringe a rival's patents.

The U.S. International Trade Commission, in a 3-2 vote, went a step further than a staff recommendation in sanctioning the San Diego chip designer for violating patents of Broadcom Corp.

An administrative law judge had recommended banning only Qualcomm chips, but the majority on the panel said such a ban would affect few imports and give "little or no relief" to Irvine-based Broadcom.

The ruling deepens Qualcomm's legal troubles. Last week, a Santa Ana jury found that the communications chip maker had violated Broadcom patents, and it awarded damages of $19.6 million. The federal jury decided Qualcomm had violated patents that help cellphones process video, enable walkie-talkie conversations and work on two types of networks.

The import ban will have no immediate effect on customers or the three carriers — AT&T Inc., Verizon Wireless and Sprint Nextel Corp. — that use the Qualcomm chips, said industry analyst Rebecca Arbogast of Stifel Nicolaus & Co.

That's because the commission grandfathered in existing smart phones and other devices that contain the so-called third-generation baseband chips, the core of the cellphones' increasingly versatile functions.

Current models of BlackBerrys, BlackJacks and other multifunction phones can continue to be imported, Arbogast said.

Third-generation service allows customers to surf the Internet, check e-mail, watch video and listen to music on faster cellular networks.

But as the short life cycles of cellphones run out and newer handsets are created to replace them, Qualcomm and the carriers will begin to feel the pressure of the ban, Arbogast said.

"It certainly isn't as bad as it could have been," she said. "But the nature of the business is such that, 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."

Qualcomm has become a lightning rod for patent litigation as the cellphone industry moves to faster third-generation networks that allow handsets to double as cameras, televisions and e-mail and messaging devices.

The company, whose system is the core for Verizon Wireless, Sprint Nextel and smaller carriers, is snarled in numerous lawsuits on three continents involving Broadcom and such industry giants as Texas Instruments Inc., NEC Corp., Nokia and Ericsson.

Many of the patents involve the latest cellphone technologies, which are only now making their way into handsets sold in the U.S. Sprint, for instance, expects to sell 5 million handsets this year with the latest functions, though Verizon is putting the top technology in most of its phones now.

As cellphones become mini-computers that work with other devices, such as TV set-top boxes and PCs, manufacturers face the increasing likelihood that chips in handsets infringe existing patents used in those other devices.