Qualcomm Scrambling Again

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Another day, another injunction. Qualcomm (Nasdaq: QCOM) is once again having to duck, weave and bob its way through the tangle of legal repercussions brought on by Broadcom (Nasdaq: BRCM) lawsuits. This time the San Diego wireless chipmaker will have to refrain from selling and supporting some of its flagship chip products in the U.S.

The latest ruling came from a federal court in California, where Qualcomm was already found to infringe on three Broadcom patents. The terms of the injunction vary across different products and time periods, however, with certain chips shipped before the May jury verdict exempt for a "sunset" period until January 2009, if Qualcomm pays a set royalty on the devices.

Qualcomm has already begun designing workarounds for the products affected. It announced availability of new pin and software-compatible replacement chips, along with a press release describing the ruling. Still, Qualcomm conceded that there will be some near-term impact. It also needs more clarity on the ruling, such as how the license between Verizon Wireless -- a joint venture between Verizon Communications (NYSE: VZ) and Vodafone -- and Broadcom is taken into account.

The real damage from the lawsuit is the distraction this causes to Qualcomm. Rather than working to develop new designs, engineers are backtracking to meet court orders. It also strains customers' relationships, since it threatens plans for carriers such as AT&T (NYSE: T) to deliver the latest phones. Sprint Nextel (NYSE: S) is also counting on Qualcomm's QChat technology to help pull it out of its tailspin, though the patents related to this are part of the sunset provision that gives Qualcomm time to deliver a work-around.

Nokia (NYSE: NOK) and Ericsson (Nasdaq: ERIC) have avoided major tangles with Qualcomm in the past by cross-licensing extensive portfolios of patents, but recent rulings portend a "pay per patent" regime that sets a dangerous precedent for the entire industry regarding intellectual property licensing. I've commented before that more companies appear to be winning impressive damage awards based upon violation of a single patent.

A willingness by the courts to mandate royalty rates also has the potential to be used and abused at the same time the U.S. seeks to streamline intellectual property licensing. Whether Qualcomm will ultimately be on the winning or losing end of this new licensing world is still undetermined.

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