Qualcomm cell phone ban to take effect

President Bush's administration said Monday that it would not veto a decision handed down in June by the International Trade Commission that would prohibit the import of cell phones using the chips that infringe on Broadcom patents.

The ban will go into effect starting Tuesday.

But Qualcomm said Monday evening that it's not giving up. The company still maintains that Broadcom's patents are not valid. And it said it's still working on an appeal and stay request with the Federal Circuit Court of Appeals. Last month, the appeals court said it didn't have jurisdiction in the case.

Qualcomm also said it is working closely with its customers and the operators on implementing new software that will provide a work-around to the patents.

"We will pursue all legal and technical options available to us to minimize the impact of the ITC order on consumers, our customers and the entire wireless industry," Paul Jacobs, Qualcomm's CEO, said in a statement.

Broadcom executives said they saw the Bush administration's decision to stay out of the patent dispute as a victory for all companies trying to protect intellectual property.

"This decision strengthens the intellectual property rights of all U.S. companies, not just Broadcom," David A. Dull, Broadcom's senior vice president and general counsel, said in a statement. "And (it) sends a clear message to all those who would seek to escape the consequences of their patent infringement. In upholding the ITC remedy, the administration is also encouraging a market-based solution to patent issues that is in the best interests of American consumers, U.S. companies and global patent protection."

Last year, an ITC judge ruled that Qualcomm's chips infringed on a Broadcom patent that would help cell phones conserve power when they are looking for a signal from a third-generation network.

Qualcomm is the dominant semiconductor manufacturer for two next-generation technologies--EV-DO and WCDMA--that are being used today by three of the four major U.S. operators to build their next generation of high-speed wireless networks. Verizon Wireless and Sprint Nextel use EV-DO technology. And AT&T is building its 3G network using WCDMA technology.

Under the ban, cell phone manufacturers and mobile operators will not be allowed to import any future models of phones that use this technology.

Ban to have wide-ranging effect
The ban would be particularly tough for all the major cell phone operators, which during the past several years have spent billions of dollars deploying their 3G networks.

The Brattle Group, a consulting firm, issued a report in July citing two University of California at Berkeley economists, Daniel McFadden, a Nobel laureate in economics, and Glenn Woroch, who said that if the ITC ban were to go into effect, it would cause between $4.3 billion and $21.1 billion in direct economic harm to consumers, cell phone carriers and handset makers, plus billions more in additional gross national product losses as a result of reduced productivity. The report also estimated up to $1.4 billion in lost revenue for the U.S. Treasury in connection with the upcoming 700MHz spectrum auction.

Public safety officials have also said that a ban on these new cell phones would hamper efforts to improve enhanced 911 capabilities. E911 allows operators to locate callers automatically when a call is placed to 911. Callers on the other end don't have to know where they are because emergency personnel are given their location through network technology. New 3G phones drastically improve the accuracy of these phones, said Judith Woodhall, executive director of Comcare, a nonprofit group that represents public-safety interests.

"It's the difference between locating the exact building instead of just a street or block," she said.

Wireless operators have already been working on their own deals with Broadcom that could minimize the impact of the ban. Last month, Verizon Wireless announced it had struck a deal with Broadcom directly.

Specifically, Broadcom and Verizon Wireless agreed to a deal by which Verizon Wireless will pay Broadcom $6 for every handset, smart phone or data card that it imports that contains Qualcomm's 3G chips. As part of the deal, Verizon Wireless will also have the right to use six Broadcom patents that are currently being litigated between Broadcom and Qualcomm.

Other operators, such as regional player Alltel, have also said they don't expect the ban to impact their business. Alltel hasn't specifically said it is working on a deal with Broadcom, but Kevin Beebe, Alltel's operations president, told Reuters news service last week that the company has a "number of alternatives we're working on that will prevent us from being impacted by the decision."

Experts agree that the industry will eventually find ways around the ban, but they say that the time it takes for companies to implement technical work-arounds or strike deals with Broadcom could still have a chilling effect on the economy and public safety.

"The situation will eventually work itself out," Woodhall said. "But it will take time, and that will slow down the market, which means it will be that much longer until this technology is widely available. And that could impact the effectiveness of public safety as well as cost tax payers more money."