Qualcomm Facing More Chip Bans?

In the latest chapter of a long legal story, communications chip developer Broadcom (Nasdaq: BRCM) claimed another victory as a federal judge upheld a patent infringement claim against rival Qualcomm (Nasdaq: QCOM). The damages for infringement were reduced to $19.6 million, however, as the judge cited a higher bar for determining willful infringement based upon precedent recently set in a case involving Seagate.

Qualcomm had hoped to force a new trial, but the judge gave Broadcom the option of accepting the reduced penalty to avoid a new trial. Broadcom announced that it will accept the reduced damages and press ahead with a request for an injunction to bar the design and sale of Qualcomm's latest chips.

The last time that Qualcomm faced an injunction of its chipsets, it came at the hand of the U.S. International Trade Commission (ITC) after Broadcom successfully argued that Qualcomm infringed another patent claim. The effects of that ban have largely been nullified, though, as Qualcomm does not import the chips themselves -- they come to U.S. shores already packed into the latest Motorola (NYSE: MOT), Samsung, or LG phones.

Qualcomm was able to relieve wireless device makers and carrier partners such as Sprint Nextel, AT&T (NYSE: T), and Verizon Wireless -- a joint venture between Vodafone and Verizon Communications (NYSE: VZ) -- from handset bans through various legal means and workarounds. These efforts largely protected these "downstream" companies -- those with no part in the legal dispute but which would have otherwise suffered damages had the ruling been upheld.

Not too long ago, investors feared and cheered that high-tech companies such as Broadcom, InterDigital (Nasdaq: IDCC), and Nokia (NYSE: NOK) had found a new friend in the ITC -- one that would expeditiously rule on patent infringement and enact product bans more readily to force competitors into a tight corner.

But several recent victories by Qualcomm have shown that ITC actions have their limitations. In another recent ruling, the ITC threw out a case brought by Nokia against Qualcomm because the two companies are already addressing the dispute in arbitration.

So while the ITC is starting to show more bark than bite these days, Broadcom will continue down the typical legal path to tighten the noose on Qualcomm -- a process that tends to drag on for years. No wonder, then, that investors are largely shrugging off today's news as only a minor development in a long war.

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