April 27 (Bloomberg) -- Qualcomm Inc., the world’s biggest maker of mobile-phone chips, agreed to pay Broadcom Corp. $891 million in cash over four years to end a global dispute over handset-technology patents.
The companies will license each other’s patents and pledged not to sue each other again, according to a joint statement yesterday. The first payment, of $200 million, will be made by June 30. The deal doesn’t affect Qualcomm’s revenue model of licensing its technology to handset manufacturers and phone- service providers, the company said.
The agreement removes a threat hanging over Qualcomm, which had been forced to limit some of its phone-chip sales after losing a trial to Broadcom in May 2007. Qualcomm faced a hearing next month that could have resulted in further limitations. The Southern California-based chipmakers had been fighting in courts since 2005, after Broadcom, known for making television set-top boxes, began targeting the mobile-phone market.
“We were concerned about the possible disruption to our business and more importantly to our customers,” Qualcomm General Counsel Donald Rosenberg said in a telephone interview.
Broadcom accused its rival of infringing patents, which Qualcomm denied. Yesterday’s agreement protects Qualcomm’s mobile-phone customers from patent-infringement allegations made by Broadcom, and Broadcom’s customers in businesses other than handsets won’t have to worry about patent lawsuits from Qualcomm. Mobile-phone companies won’t be able to avoid making license payments to Qualcomm by becoming customers of Irvine, California-based Broadcom.
Business Freedom
“This gives each of us the freedom to act in our core businesses,” Rosenberg said.
Qualcomm had about $13.1 billion in cash and marketable securities at the end of last year. The company is scheduled to report second-quarter earnings today.
The settlement may save Qualcomm about $100 million in annual legal costs, and about $50 million for Broadcom, according to Mark McKechnie, a San Francisco-based analyst for Broadpoint Amtech Inc.
“The important thing, at least for Qualcomm, is that their business model isn’t broken,” McKechnie said in an interview. He said the payment was about as big as he had expected. “For Broadcom, that’s a nice chunk of change.”
Qualcomm Setbacks
“We have set aside our differences while addressing the needs of our customers, our shareholders and the industry,” Broadcom Chief Executive Officer Scott McGregor said in the statement. Bill Blanning, a spokesman for Broadcom, didn’t respond to an e-mail seeking additional comment.
Qualcomm rose 63 cents to $41.36 on April 24 in Nasdaq Stock Market trading. The shares have gained 15 percent this year. Broadcom, which has advanced 43 percent this year, added 87 cents to $24.22.
So far, Broadcom had mainly won the legal fights between the two companies. Qualcomm’s General Counsel Lou Lupin quit in 2007 after setbacks in the Broadcom litigation.
In addition to a case pending in federal court in Santa Ana, California, over sales limits on some of Qualcomm’s so- called third-generation chips, Qualcomm also was accused of trying to monopolize the market for phone chips in an antitrust case brought by Broadcom in San Diego.
ITC Case
Those cases will be dismissed, as will a case pending before the U.S. International Trade Commission in Washington, the companies said yesterday. In the ITC, Qualcomm was facing a possible enforcement action after Broadcom accused Qualcomm of violating an order that prevents some chips from entering the U.S. for testing purposes. Broadcom had won an order blocking imports of phones with Qualcomm chips, only to have the decision overturned by an appeals court.
Qualcomm had accused Broadcom of violating its patents, though it dropped several of the suits. In the only of those cases to go to trial, Qualcomm lost and was later cited for contempt for failing to turn over documents Broadcom needed to defend itself in the case.
Qualcomm was also banned from enforcing its patents on the transmission of DVD-quality video over satellites against companies that comply with an industry standard on the videos.
Last year, Qualcomm agreed to pay 1.7 billion euros ($2.24 billion) to settle a different patent suit with Nokia Oyj, the world’s largest mobile-phone maker. Qualcomm and Nokia signed a 15-year cross-licensing agreement in July on patents and wireless standards, ending lawsuits in the U.S., Europe and Asia.
European Union Complaint
Qualcomm is still being investigated by the European Union over a complaint made by Broadcom, Texas Instruments Inc. and Ericsson AB, who claimed consumers are being overcharged billions of euros for mobile-phone technology because of high royalty rates demanded by Qualcomm.
Broadcom will withdraw its complaint in that case, as well as one before the Korea Fair Trade Commission. Nokia has already withdrawn its antitrust complaints.
“We argued that the real impetus for these complaints were commercial disputes,” Rosenberg said. “What we’ll try to explain is that these cases both settled, and I hope that’s something they take into account.”
To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net; Susan Decker in Washington at sdecker1@bloomberg.net
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