Qualcomm-Chip Phones Banned

Jun 08, 03:04 PM

Current Headlines: By Christopher S. Rugaber Associated Press

WASHINGTON -- A federal agency has banned U.S. imports of new cell phones made with Qualcomm semiconductors because the chips violate a patent held by Broadcom.

The U.S. International Trade Commission said Thursday the import ban would not apply to mobile phone models that are already being imported, just to future models.

The ruling is a blow to Qualcomm Inc., to wireless handset makers such as Motorola Inc. and Samsung Electronics Co., and to service providers such as Verizon Wireless, Sprint Nextel Corp. and AT&T Inc.

All three service providers sell phones that rely on Qualcomm chips to access their high-speed data networks, and 80 percent of the phones sold by Verizon use San Diego-based Qualcomm's technology.

Paul Jacobs, Qualcomm's chief executive, said the decision could prevent imports of tens of millions of mobile phones. The company will immediately ask a federal court to prevent the ban from taking effect and ask President Bush to veto the order.

"We believe the commission has overstepped its statutory boundaries and has not afforded due process to manufacturers and operators," Jacobs told analysts on a conference call. "If (the ruling) stands, it will have a negative impact on consumers."

Verizon Wireless said it will also ask a federal court to block the order and urge a White House veto.

"This is a bad order for the industry, and it's going to freeze innovation," company spokeswoman Nancy Stark said. "We were never accused of infringing on anything yet we're being punished."

AT&T said it was studying the ruling and considering its options. Sprint Nextel declined to say if the company would join Verizon's appeal.

The White House has 60 days to veto the ruling, said Lou Lupin, Qualcomm's general counsel.

Broadcom Corp. spokesman Bill Blanning welcomed the commission's ruling and said the company, based in Irvine, Calif., aims to license its patent to Qualcomm. "We simply want to be adequately compensated for the use of our intellectual property," he said.

Securities analysts said the decision could result in higher prices for cell phone users as companies pass along the costs of switching to the new technology.

"This is unwelcome news to Qualcomm and its wireless carrier customers," said Rebecca Arbogast, an analyst at investment bank Stifel, Nicolaus & Co. Inc. Mobile phone models are updated rapidly, she said, meaning that the exception for current models could last only a limited time.

Mark McKechnie, an analyst at American Technology Research, said Qualcomm will have to scramble for technology that does not infringe on Broadcom's patents. The decision could potentially slow the introduction of new models, including Motorola's Razr 2 phone, to be introduced in Asia in July and elsewhere later this year, he said.

"(The ITC) wanted to recognize and show respect for Broadcom patents without bringing the whole U.S. economy down," he said.

Though Motorola is based in the U.S., it outsources to contract manufacturers in Asia, so its phones also would be subject to the import ban.

The precise financial effect of the limited ban is unclear. However, J.P. Morgan Securities analyst Ehud Gelblum last month estimated that a total ban would have affected up to 80 million phones, costing the company some $1.6 billion in revenue in its next fiscal year, which begins Oct. 1.

Simon Willkie, a communications professor at the University of Southern California and former chief economist at the Federal Communications Commission, estimated that cell phones with infringing chips make up approximately 25 percent of all mobile phone imports. Willkie testified on Broadcom's behalf during a March ITC hearing.

In addition, Jerry A. Hausman, a professor of economics at MIT, warned in March that a ban on Qualcomm's chips would lead Verizon Wireless and Sprint to raise their prices for wireless service.

Broadcom's patent covers a technology that helps conserve battery power when a cell phone is out of range of a wireless network.

The commission's decision represents a compromise between a ban on all phones with Qualcomm chips, as its rival Broadcom requested, and a ban only on the chips that are not assembled into phones, as recommended by an ITC administrative law judge late last year.

The ITC said an immediate ban on all mobile phones with Qualcomm chips "would impose great burdens" on cell phone makers and wireless carriers. But since most of the chips are imported as part of a phone, barring only the chips themselves "would afford little or no relief to the patent holder, Broadcom."

Contributing: Elliot Spagat

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