In its effort to earn royalties for a patent that rival Qualcomm has been found to infringe, Broadcom is doing an end-run by striking a licensing deal with Qualcomm's customer, Verizon Wireless.
Specifically, Broadcom and Verizon Wireless said Thursday they have 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 that use a technology called EV-DO or Evolution-Data Optimized. As part of the deal, Verizon Wireless's total payments will not exceed $40 million per calendar quarter, and the payment will not exceed a lifetime maximum fee of $200 million. The deal will also give Verizon Wireless the right to use six Broadcom patents that are currently being litigated between Broadcom and Qualcomm.
Verizon Wireless is one of two major cell phone operators in the U.S. to get caught in the middle of a legal ping-pong match between Broadcom and Qualcomm over the use of 3G chips made by Qualcomm that were found to infringe on a Broadcom patent. The patent describes how wireless devices can conserve power when searching for signals. It was originally designed for devices using Wi-Fi, but Qualcomm has supposedly adapted the technology for use in its 3G chips.
On June 7, the U.S. International Trade Commission ordered a ban on the import of all future models of phones using this 3G technology from Qualcomm. The ban, which still hasn't gone into effect, could have caused huge problems for Verizon Wireless, which sells phones that use Qualcomm's 3G chips.
Even though the ban doesn't apply to handset models shipped into the U.S. on or before June 7, it would have impacted Verizon Wireless' ability to sell new models of 3G handsets, such as Motorola's new 3G-enabled Razr2 and the latest mode of the Motorola Q, which will begin shipping in the U.S. this year.
But with this deal, Verizon is free to sell any phone it wants.
"We are pleased to have worked out an agreement with Broadcom to ensure continued delivery of new and innovative products to our customers," Lowell McAdam, President and Chief Executive Officer of Verizon Wireless, said in a statement.
Even though this deal could potentially weaken Qualcomm's case for dismissing the ITC ban, Qualcomm said in a statement that it was a positive development, because it "removes uncertainty for Verizon Wireless and its customers by ensuring that Verizon Wireless will be able to continue to sell wireless broadband products powered by Qualcomm's chipsets and software."
Qualcomm also said in its statement that it felt the terms of the deal with Verizon Wireless were "far less drastic than any terms previously demanded by Broadcom from Qualcomm." This is somewhat ironic considering that on June 30, Broadcom said that Qualcomm had actually rejected a similar offer that included a $6 royalty fee for each mobile phone affected by the ban.
Qualcomm officials also say they aren't done fighting the ban. The company is still pursuing a presidential veto and an emergency stay on the ban.
"Although the announced deal would appear to reduce the risk of disruption of Verizon Wireless' network, it does not resolve the problems arising from the ITC's order for the many other wireless carriers affected by the ITC's order," the company said. "Given the continuing negative impact to the public interest and public safety posed by the ITC's order, Qualcomm is continuing to work with its partners on seeking Presidential disapproval of the ITC's ban."
Sprint Nextel, which also uses the 3G chips made by Qualcomm, could also be impacted by the ban if it goes into effect. But the company has previously said that it has developed a work-around to the patent. And so far, no deal between Broadcom and Sprint has been announced.
But Broadcom, which has had its eye on supplying wireless chips to the mobile device market for a while, is also cozying up to one of Verizon Wireless' parent companies, Verizon Communications. In a separate deal, the companies said Thursday they are teaming on an initiative involving new mobile device chipsets and other products, including Bluetooth and wireless LAN products, optical network solutions, Multimedia over Coaxial Cable (MoCA) devices, GPS location technology, and DSL and fiber network components including set-top boxes. They'll also pursue technology cross-licensing opportunities, the companies said.