Qualcomm to fight rulings on chips bearing Broadcom patents: Analysts await earnings calls to gauge financial impact

On Monday, a federal judge said that Qualcomm Inc. must end the sale in the United States of W-CDMA chips that infringe on three Broadcom Corp. patents.
The ruling’s details are complicated, however, and Qualcomm said today that it is seeking clarification and “further relief” from the injunction as well as the original infringement ruling, which came last May.
District Court Judge James Selna apparently crafted an injunction that would reflect the court’s earlier infringement finding while not unduly punishing Qualcomm or its customers — though the injunction’s impacts are yet to be fully weighed.
Analysts said they expected to have a better grasp of possible financial impacts on both parties when the two chip companies hold earnings calls later this month. Qualcomm will host a conference call on its fiscal first-quarter earnings on Jan. 23. Broadcom will hold an earnings call on its fourth-quarter and full-year results on Jan. 24.
Beyond the current case, Broadcom and Qualcomm are battling over other patent-infringement issues, all of which play a role in ongoing contention over a broad, cross-licensing deal that could help preclude legal wrangling.
According to Qualcomm, the injunction allows it to sell some affected chips — those already on sale by May 29, the date of the original jury verdict of infringement — to handset makers that use QChat and CDMA2000 1x EV-DO, subject to royalty payments to Broadcom. That arrangement ends Jan. 31, 2009. Qualcomm said today that it continues to pursue “workaround” chips for those applications that would not infringe on Broadcom patents.
Separately, the injunction immediately bans the sale of Qualcomm’s W-CDMA chips found to infringe on a Broadcom video-encoding patent. Qualcomm said that it will deliver hardware and software workarounds to its customers in the next 90 days.
According to Broadcom, the injunction requires Qualcomm to pay it 4.5% or 6% (depending on the type of chip) of revenue on a quarterly basis from sales of infringing, legacy CDMA2000 1x EV-DO chips between May 29, 2007, and Jan. 31, 2009, when those sales must stop. (Sales of chips first sold after May 29 are banned.) Qualcomm must pay Broadcom a to-be-determined royalty rate on sales of legacy QChat chips between May 29, 2007, and Jan. 31, 2009.
Broadcom filed the case in May 2005 and on May 29, 2007, a jury found that Qualcomm infringed on three Broadcom patents and awarded the latter $19.6 million in damages for past infringement.
Analyst Blair Levin at Stifel Nicolaus wrote today in a note to investors that the immediate ban on Qualcomm chips relating to video compression would impact AT&T Mobility, while noting that Qualcomm is pursuing what it termed “design around,” alternative chips. For its part, AT&T said it is “studying the order,” but did not provide any further details.
Separately, the ban on new QChat, or push-to-talk, chips will impact Sprint Nextel Corp., Levin wrote. However, Sprint Nextel said it does not expect the rulings to delay the launch of its QChat service, according to Reuters.
The analyst noted that Verizon Wireless struck an independent deal with Broadcom last year to avoid the consequences of the ongoing legal battle between the two chip makers.
Broadcom is expected to challenge the legality of Qualcomm’s alternative chips and the latter has requested that Judge Selna appoint a “special master” to evaluate such challenges.