Appeals court grants stay of ITC ban

Qualcomm Inc. can exhale now, and so can a number of its key customers. Holiday sales of imported 3G phones that had been banned by a federal agency can proceed.
A ban on the importation of new 3G handsets containing Qualcomm chips will be stayed while an appeals court reviews the merits of the case. Companies besides Qualcomm that will benefit from the lifting of the ban include AT&T Mobility, T-Mobile USA Inc., Samsung Electronics Co. Ltd., Motorola Inc., LG Electronics Co. Ltd., Sanyo Fisher Co. and Kyocera Wireless Corp.
Verizon Wireless had cut its own deal with Broadcom to pay $6 per handset to avoid the ban, and analysts speculated whether that deal provided for a drop in payments if the ban was lifted. Sprint Nextel Corp. had not announced such a deal, nor had it filed a motion to stay the ITC ban. The carrier apparently opted instead to import handsets relying on a Qualcomm-created “workaround” that avoided using Broadcom’s patent. Analysts have speculated that Broadcom would challenge the workaround in court.
The ruling at least gives Qualcomm a psychological boost after the company’s losses in number of recent court cases. Qualcomm’s stock, which had been hovering below $38 all week, opened today above $39, before dropping to nearly $38 and rising again to nearly $39, presumably while traders digested the implications of the news.
The Court of Appeals for the Federal Circuit agreed yesterday that a ban on the importation of 3G handsets bearing Qualcomm chips found to infringe on a Broadcom patent would unjustly harm third parties-Qualcomm’s customers. Thus the Federal Circuit maintained a ban on the importation of 3G Qualcomm chips. But the company said it does not import its chips into the U.S.; its chips are incorporated into its customers’ handsets overseas, then imported.
The Federal Circuit now will turn to reviewing the merits of the infringement finding and the ban, which Qualcomm has appealed. Thus Qualcomm’s exhalation merely allows it to take a deep breath before plunging into its arguments for a complete reversal of the original infringement finding and, thus, the ban.
The United States International Trade Commission had imposed the ban in June as a remedy to its finding that Qualcomm infringed on a Broadcom patent for power management. The ban threatened to curtail the sale of 3G phones at U.S. carriers in the crucial holiday season.
Broadcom had filed its patent infringement complaint against Qualcomm alone before the ITC, and Qualcomm and a number of its customers had filed motions to stay the ITC’s ban on the argument that the ban unfairly affected “downstream users.”
Analysts were cautious on the impact of the Federal Circuit stay of the ITC ban.
Mark McKechnie at American Technology Research said in a note to investors today that the news merely increased confidence in his earnings projections for Qualcomm’s next quarter, which had assumed no material impact to Qualcomm’s earnings from the ban.
Stifel Nicolaus analyst Cody Acree said the stay of the ban was particularly good news for the three carriers involved-Sprint Nextel, Verizon and T-Mobile. Sprint Nextel might be able to belatedly file for its own stay, removing the uncertainty surrounding its use of a workaround. Verizon and AT&T may benefit if their presumed agreements with Broadcom provided for relief in the event the ban was lifted. (Verizon declared its deal with Broadcom. AT&T has not, though analysts presume that it also has such a deal.)
Acree also said that the ruling might ultimately affect the use by various wireless industry players of the ITC as a forum for settling disputes. Nokia Corp. and Qualcomm have both filed complaints before the ITC alleging infringement of their patents by the other party.