Qualcomm Inc (QCOM)

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Broadcom Hits Qualcomm Broadside
By Dave Mock
July 8, 2005

http://www.fool.com/News/mft/2005/mft05070812.htm

The one thing investors have come to expect from companies that license technology and intellectual property is lawsuits, and plenty of them. It's inherent in the business.

The telecom and wireless markets are no exception. Things must have been too quiet in the courtroom lately, because in mid-May, Broadcom (Nasdaq: BRCM) launched a series of complaints, lawsuits, and press releases accusing Qualcomm (Nasdaq: QCOM) of infringing on multiple patents. Apparently, many chip-set products that Qualcomm produces contain Broadcom technology.

Broadcom also filed a complaint with the US International Trade Commission (ITC) stating that Qualcomm utilizes unfair trade practices. In the weeks that followed, it filed complaints in the US District Court that Qualcomm's business violates US antitrust laws in a number of ways related to the licensing business that generates more that one billion dollars annually for Qualcomm.

Apparently, Broadcom feels that, beyond being a patent infringer, Qualcomm is a thorn in the side of every player in the industry and that its business practices limit competition and stifle innovation. Broadcom CEO Scott McGregor openly stated that a goal of the litigation is to level the playing field for all players, not just for his company. He even went so far as to refer to Qualcomm as a monopolist. Now, in my neighborhood, them's fightin' words.

Of course, Qualcomm's response is that the lawsuits are meritless. In a rebuttal, the company grandly pointed to a poor track record in Broadcom's legal area, painting the picture of a company that is quick to litigate with baseless charges.

In my opinion, all the legal wrangling likely comes down to this: Broadcom wanted a free pass through a cross-license to Qualcomm's technology, and Qualcomm wouldn't give it. The filing of antitrust claims and statements from the CEO demonstrates that Broadcom is after far more than just ensuring Qualcomm doesn't illegally use its patents -- the company is trying to marginalize Qualcomm by making broad claims of oppressive competitive behavior.

Of course, owning shares of Qualcomm and authoring a corporate biography that chronicles its success perhaps makes mine a biased opinion. But I am not alone. Investors seem to be unfazed as Qualcomm's stock has wavered little upon the announcements, backing up some analysts' view that Broadcom's claims will be tough to prove and win. Overall, it's just more business as usual.

For more peaceable Foolishness on Qualcomm, check out these:

Qualcomm Gets Personal
Qualcomm Dials Back Optimism
Fool contributor Dave Mock has never smoked a peace pipe, or seen one for that matter. He owns shares of Qualcomm and is author of its first corporate biography -- The Qualcomm Equation.