Qualcomm Inc (QCOM)

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(Update1)Qualcomm Rejects Broadcom's Lawsuit Settlement Offer

By Peter J. Brennan and Jeff St.Onge


Qualcomm display at the Korea IT Show 2007 June 28 (Bloomberg) -- Qualcomm Inc., the world's second- biggest maker of chips that run mobile phones, rejected an offer from smaller rival Broadcom Corp. to settle a patent dispute, saying it would cost as much as $2 billion.

Broadcom is seeking $6 for every handset sold with a Qualcomm chip that was found to infringe a patent for a battery- saving feature, Broadcom spokesman Bill Blanning said today. Qualcomm rejected the offer, made earlier this week, and instead offered to pay $100 million and agree that the companies would give each other royalty-free access to patents.

``Broadcom is asking for a royalty rate for one patent greater than the rate we ask for our entire portfolio,'' Qualcomm spokesman Bill Davidson said in an interview. ``We rejected it because it's an extraordinary request.''

The U.S. International Trade Commission on June 7 proposed banning some mobile-phone imports after finding Qualcomm's new processors infringe a Broadcom patent.

A settlement would mean the newest phones with San Diego- based Qualcomm's chipsets would be able to enter the U.S. For Broadcom, which is seeking to expand its sales from markets such as set-top boxes into mobile phones, accepting a settlement would let the company more easily sell its chips to manufacturers without fear of lawsuits from Qualcomm.

Broadcom has made several offers on a ``fully exhaustive'' license and Qualcomm has failed to make a detailed response, Broadcom's Blanning said in an e-mail.

`Small Fraction'

Shares of Irvine, California-based Broadcom fell 76 cents, or 2.5 percent, to $29.60 at 4 p.m. New York time in Nasdaq Stock Market trading and have dropped 8.4 percent this year. Qualcomm rose 4 cents to $43.46 and has gained 15 percent in 2007.

The companies traded offers this week in letters that were circulated among U.S. carriers such as AT&T Inc. and telephone manufacturers including Motorola Inc. The phone companies are joining with Qualcomm to oppose the ITC ban, which stems from a spat of lawsuits that began in 2005.

Broadcom's $6 per handset offer is ``a small fraction of the revenue generated for each such handset by the carriers,'' Broadcom General Counsel David Dull wrote in a June 25 letter to Marvin Blecker, Qualcomm's president of technology licensing.

Qualcomm said the fee would amount to a royalty of at least 30 percent on its chipset for each handset. That means this patent could cost the industry about $1.5 billion to $2 billion over three years, according to a June 27 response from Blecker.

`Out of Proportion'

Broadcom's remedy is ``grossly out of proportion to the value of this particular patent,'' Blecker wrote in his reply. Bloomberg News obtained copies of both documents.

Qualcomm's offer of royalty-free access to its patents is similar to one the chipmaker has with larger competitor Texas Instruments Inc. of Dallas. Qualcomm generates the bulk of its royalties by charging handset makers less than 5 percent of the wholesale cost of a handset.

Royalties generated $636 million of Qualcomm's earnings before taxes, or about 67 percent of its profit for the quarter that ended in March.

The ITC ban is opposed by the largest U.S. wireless carriers and emergency-response units. The decision is being reviewed by Schwab and possibly by President George W. Bush, with a final decision on whether to approve the ITC ruling due before Aug 7.

Qualcomm and handset makers such as Samsung Electronics Co. and LG Electronics Inc. are asking a federal appeals court to put the proposed ban on hold. The U.S. Court of Appeals for the Federal Circuit in Washington this week ordered Broadcom and the ITC to lodge their written arguments by July 3.

Broadcom has set a goal of reaching up to 15 percent market share in the principal chips for mobile phones by 2009 or 2010. The company had 1 percent in 2006, according to researcher iSuppli Corp. in El Segundo, California. Texas Instruments led the market with 31 percent, followed by Qualcomm with 27 percent.

The case is In the Matter of Certain Baseband Processor Chips and Chipsets, 337-543, U.S. International Trade Commission.

To contact the reporters on this story: Peter J. Brennan in Los Angeles at [e-mail] ; Jeff St.Onge in Washington at [e-mail] .

Last Updated: June 28, 2007 16:14 EDT

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