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Qualcomm surrenders in Broadcom patent spat

Only lawyers annoyed

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Wireless-communications leader Qualcomm has agreed to an $891m (£608m) settlement with its bitter rival Broadcom, thus ending a long-running patent dispute between the two companies.

The $891m will be paid over the next four years, with the first $200m (£136m) due to Broadcom on June 30th. The two companies will license each other's patents and agree not to sue each other in the future.

This last stipulation is perhaps most important to Qualcomm, which had been blocked from some sales due to Broadcom's previously successful litigation and which was facing another court date next month that may have brought further restrictions.

According to Bloomberg, Qualcomm had been spending up to $100m (£68m) annually on legal fees during the four-year patent imbroglio. But now, according to a joint statement, the settlement ends "all patent infringement claims in the International Trade Commission and U.S. District Court...as well as the withdrawal by Broadcom of its complaints to the European Commission and the Korea Fair Trade Commission."

Simply put, the long legal battle is finally over, and the two companies can go back to pursuing their existing business models - except Broadcom will have more cash and Qualcomm will have less.

But although around $200m per year for four years may seem like a significant amount, Qualcomm can afford it. In its financial statement for its most recent fiscal quarter, released (PDF) Monday, the company declared $14bn (£9.6bn) in cash and securities.

The settlement, however, had an immediate adverse impact on Qualcomm's financial performance. The company's operating income for the reported quarter was a mere $214m (£146m), down from $986m (£673m) in the prior quarter - and the dive was directly related to a $748m (£510m) charge for "litigation settlement related to the settlement and patent agreement with Broadcom."

And so ends a long, painful legal slog, which first reached the US courts in May 2005 when Broadcom filed suit against Qualcomm for 10 patent infringements. At that time, Broadcomm's CEO Scott McGregor explained that the suit was brought because "We believe that Qualcomm's current and next generation cellular baseband and radio frequency (RF) product lines infringe a number of our patents."

The pressure on Qualcomm rose in July of that year when Broadcom tacked on an antitrust suit to the original complaint, and yet again in October, when Nokia, Panasonic, NEC, Ericsson, and Texas Instruments joined with Broadcom to ask the EU to investigate Qualcomm, alleging that the company was abusing the EU's antitrust rules.

Although Qualcomm at the time charged that the antitrust complaints were "factually inaccurate and legally meritless," things were looking beak by June of the following year. Nokia has started its own legal action against the company and the IEEE had canceled a taskgroup citing undue Qualcomm influence. Times were so turbulent that the company's chairman and CEO Paul Jacobs suggested that he might break up the company to skirt antitrust allegations.

Then in October 2006, an ITC judge ruled that Qualcomm had, indeed, violated a Broadcom patent. In February of the next year, Broadcom won another patent case - and one that revealed what could be reasonably called shady dealings by Qualcomm.

Things went further downhill for Qualcomm in May 2007, when Broadcom was awarded $19.6m for three patent violations. The big blow, however, came in June when an ITC judge barred the import to the US of any new phones that contained Qualcomm chips.

As might be guessed, Qualcomm appealed the ban - and lost. They then tried to get the White House to veto the ban - and lost.

Later in 2007, the wheels started to fall off.

In August 2007, a US judge ruled that Qualcomm had kept a video-codec patent secret until it had been adopted by the industry and then sued users for breaching the patent - not only an illegal move, but a tacky one as well. Then Qualcomm's general counsel jumped ship. Then a US judge doubled the original $19.6 judgment, calling the patent infringement "willful." Then another US judge declared that Qualcomm attorneys had shown "deliberate ignorance" in a "monumental discovery violation."

Finally, in October of last year, a US federal judge ruled that the ITC import ban was incorrect - but didn't extend the lifting of it to Qualcomm itself, only to third parties whose phones contained Qualcomm chips. Qualcomm still couldn't import its own chips into the US.

Since that decision, the legal mud-wrestling has continued - you can find an exhaustive summary here - but now it's finally drawing to a close.

After spending over a billion dollars in legal fees and settlement cash, Jacobs now says "I am pleased that we have achieved this important settlement," and McGregor adds "We have set aside our differences while addressing the needs of our customers, our shareholders and the industry."

Better late than never, we suppose. ®

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