Just Say "No" to Qualcomm

by Dave Mock

Chalk up another victory for communications chipmaker Broadcom (Nasdaq: BRCM) in its long war with wireless technology provider Qualcomm (Nasdaq: QCOM) over intellectual property rights. Winding down a closely watched investigation, the U.S. International Trade Commission ruled in a 4-to-2 vote that certain products containing Qualcomm's chips would be banned from import into the United States. The limited ban includes new phone and PDA models but exempts phones and devices that are already being sold in the market, as well as wireless data cards used in laptop computers.

Four commissioners voted in favor of the remedial relief for Broadcom that effectively keeps wireless carriers Verizon (NYSE: VZ), Sprint Nextel (NYSE: S), and AT&T (NYSE: T) from importing feature-rich new phones that contain Qualcomm chipsets. The chairman of the committee and another commissioner, however, disagreed with the ruling and sought a more limited action that doesn't impose a burden on customers of Qualcomm and consumers.

Representatives from many carriers argued to the commission for a more limited remedy that doesn't punish them for the dispute between two suppliers. Whether the ban should include downstream products -- those wireless devices that contain Qualcomm's chips, rather than just the chips themselves -- was the most contested portion of the decision. Many carriers are concerned they may not be able to import models to compete with or offer as a cheaper alternative to Apple 's (Nasdaq: AAPL) iPhone during the popular holiday season.

The order from the commission was made based upon Qualcomm's infringement of five claims in a single patent owned by Broadcom. The two companies have been negotiating for years on terms of a licensing deal, but like Qualcomm's current stalemate with Nokia (NYSE: NOK), there's little progress in the talks. In order to avoid any disruption to wireless products in the near term, Qualcomm will pursue a stay with the U.S. Court of Appeals and a veto of the order from the Bush Administration.

While Qualcomm investors are not used to losing legal battles, this war is far from over and investors in both companies should still be prepared for a long, drawn-out confrontation. Each company seems to be holding fast to their positions in negotiations for a license, and each still has a quiverful of legal arrows to fire at each other. Spreading the pain to the surrounding industry will step up pressure to reach an agreement though, so this fight will likely get worse before it gets better.