Broadcom Corporation (Nasdaq: BRCM), a global leader in semiconductors for wired and wireless communications, urged the Administration not to overturn an International Trade Commission (ITC) action against Qualcomm Incorporated (Nasdaq: QCOM) for infringing a Broadcom patent, saying a Presidential veto would weaken U.S. efforts to strengthen intellectual property (I.P.) rights globally.
“In this case, the Administration faces one of the most critical decisions on trade policy in recent years,” said David A. Dull, Broadcom’s Senior Vice President and General Counsel. “Overturning the ITC’s remedy for Qualcomm’s patent infringement would ultimately make it more difficult for U.S. companies to defend their I.P. rights and complicate the Administration’s I.P. policy initiatives. Policymakers around the world are watching this decision closely to ascertain its implications for a wide range of sensitive trade issues involving I.P. rights.”
“Encouraging a market-based solution to the issues presented in this case is in the best interests of U.S. companies and American consumers. Leaving the ITC order and remedy intact would also promote a level playing field that would foster competition, innovation and growth,” Mr. Dull added.
President Bush has designated U.S. Trade Representative Susan C. Schwab to review the ITC action and make the decision on whether to allow the ITC order to stand or to disapprove it. The 60-day Presidential review period ends August 6.
Broadcom today issued a detailed review of the facts in the case to aid Administration officials in their review of the ITC action against Qualcomm. “With the flurry of news reports on rulings by both the ITC and the U.S. District Court for the Central District of California that Qualcomm’s cellular chips infringe multiple Broadcom patents, as well at the USTR review, we thought it would be useful to set the record straight on several issues regarding the ITC order and a prospective settlement between Qualcomm and Broadcom,” said Mr. Dull.
Key Background Points
Broadcom is the victim of Qualcomm’s serial patent infringement. Qualcomm has been found to infringe four different Broadcom patents, one tried in the ITC and three others tried before a federal jury in Santa Ana, Calif. The unanimous May 29 jury verdict also found Qualcomm’s infringement to be willful.
Unanimous ITC finding of infringement. Last year, an Administrative Law Judge of the ITC and later the Commission itself found that Qualcomm’s cellular baseband chips infringe five claims of Broadcom’s U.S. Patent No. 6,714,983, which relates generally to power conservation in cellular phones. On June 7 the six-member Commission issued its Final Determination on a remedy for Qualcomm’s infringement, ordering that certain infringing Qualcomm chips, and future model cellular phones that incorporate those chips, be barred from importation into the United States.
The ITC constructed a thoughtful, balanced compromise remedy. In its proceeding, the ITC constructed a balanced compromise remedy following months of exhaustive study, mountains of evidence, and two days of public hearings. The ITC remedy limits Qualcomm’s ongoing infringement while protecting public health and safety, competitive conditions in the U.S. economy, and U.S. consumers.
Patent infringement is the real issue in this dispute. Qualcomm would like the media, government officials and the financial community to believe that the effects of a limited ban on the importation of future 3G cellular phones with infringing Qualcomm chips will cause significant disruption in the cellular industry and the U.S. economy. In fact, however, the ITC carefully fashioned a remedy to Qualcomm’s infringement that both preserves the public interest and honors the nation’s long-standing policy of enforcing the patent laws. By comparison, Qualcomm’s ongoing theft of intellectual property can never serve the national interest. Moreover, Qualcomm knows that it can make the ITC remedies go away immediately by shifting its focus from a politically-imposed solution to meaningful commercial negotiations.
Qualcomm does not warrant Presidential assistance. In addition to its ongoing infringement of multiple Broadcom patents, Qualcomm faces potential court sanctions for failing to abide by the patent disclosure rules of an industry standards-setting body and for withholding more than 300,000 pages of documents in a video compression patent infringement case that it brought — and lost — against Broadcom. Qualcomm also has a long history of not playing fair with competitors and of playing tough with its own customers and licensees. Parties who would side with Qualcomm in turning a blind eye to its serial theft of Broadcom’s intellectual property need to understand that this is just the tip of the iceberg of unsavory litigation tactics and licensing activities by Qualcomm.
Presidential Review of the ITC Order
I.P. enforcement is a critical national policy. The continued enforcement of U.S. patent laws is critical to maintaining America’s technological leadership, and the President should not veto the ITC’s narrowly-crafted remedy for Qualcomm’s ongoing infringement of Broadcom’s ’983 patent. A Presidential veto should not substitute for a market-place-driven solution. The ITC decision tells both companies in this dispute that a negotiated settlement is the best way to avoid the sanctions and impacts that could result from continued infringement. Broadcom recognizes this reality and has offered to license the ’983 patent both to Qualcomm and to its direct and indirect customers.
A Presidential veto would undermine longstanding U.S. support for I.P. enforcement abroad. Many in China, Brazil and the developing world will take comfort in a Presidential decision that places political considerations ahead of property rights. Such a decision would give license to other nations to ignore the rule of law and allow their own domestic political considerations to take precedence over strong intellectual property enforcement. Ironically, Qualcomm itself has been one of the principal proponents of such enforcement for many years. But Qualcomm is not alone in benefiting from international adherence to patent rights. Other major U.S. industries such as pharmaceuticals, biotech, financial services, aerospace, computers, and agriculture rely on the global acceptance and enforcement of I.P. rights.
Emergency responders will not be adversely affected by the ITC order. Scare tactics, attempting to link the ITC patent enforcement issue to our nation’s ability to fight the war on terror and cope with natural disasters, should have no place in this commercial dispute. Testimony given at the ITC’s hearings in March 2007 showed that radios — not cell phones — are the backbone of America’s emergency response system. Even to the extent that cell phones may be used in emergency response situations, the ITC’s compromise remedy of “grandfathering” existing cell phone models that use infringing Qualcomm chips, and exempting cellular PC cards entirely, will ensure the continued supply of 3G cellular devices to first responders and all other users. Also, there are many cell phone models using other companies’ chips that are completely unaffected by this order and that are and will be available for use by first responders and others.
A Presidential veto would be an extraordinary act. It has been twenty years since a President chose to disapprove an ITC finding. Indeed, in the entire history of the ITC, Presidents have disapproved ITC 337 orders only five times in 145 cases presented. Unlike the cases that provoked a Presidential veto, the ITC finding in this case contains very narrow remedies and avoids unwanted affects on key national policy areas.
A Presidential veto would entrench Qualcomm’s monopoly. A Presidential veto would have the perverse effect of making patents less enforceable against one of the largest patent aggressors in the world. Qualcomm collects about $3 billion per year in royalties for the use of its patents, and has used its patents and various discriminatory practices to secure a monopoly position in the CDMA cellular chip market. A ruling that other companies are not able to effectively use their own patents to level the playing field with Qualcomm would further solidify Qualcomm’s monopoly position and pave the way for its extension into other cellular markets. Competition and consumers will suffer.
Qualcomm has yet to offer any compensation for infringement of Broadcom’s ’983 patent. Despite more than that two years of protracted litigation in the ITC and a unanimous Commission finding that Qualcomm infringes Broadcom’s ’983 patent, neither Qualcomm nor any other company has ever offered to compensate Broadcom for use of that patent. Qualcomm and its allies have instead indicated that they will focus their efforts on using the political process to seek a Presidential veto. In the media, Qualcomm has implied that it offered $100 million to settle, but failed to make clear that the offer was actually part of a “global” settlement proposal made months ago, not a current offer to license just the ’983 patent. The global proposal made by Qualcomm was inadequate and unacceptable to Broadcom for many reasons.
Broadcom also seeks a “global” settlement. Broadcom strongly prefers a global resolution with Qualcomm covering all patent infringement and anti-competition issues, but Qualcomm has not been willing to enter into such a global agreement. Broadcom presented a new global settlement proposal to Qualcomm just last week. The ball is in Qualcomm’s court.
Broadcom remains willing to do an “industry standard” license. Throughout the term of the dispute, Broadcom has also been willing to enter into a royalty-free, exhaustive, portfolio-wide patent cross- license with Qualcomm. We remain willing to do so today. Patent cross- licenses with such terms are standard practice among major semiconductor industry participants. Qualcomm, not Broadcom, is the exception here.
Broadcom has offered a separate license to the ’983 patent. Given Qualcomm’s intransigence on both a global settlement and an industry- standard patent cross-license, to deal with the specific situation in the ITC Broadcom has separately offered to enter into an exhaustive license for the ’983 patent only, at a royalty rate of $6 per handset. That offer remains on the table today and is available not only to Qualcomm but also to its direct and indirect customers.
The proposed ’983 royalty is less than that requested by Qualcomm in similar but unmeritorious circumstances. The $6 per handset royalty — which equates to about 2-2 1/2 percent of the price of each handset — is less than the 4 percent royalty Qualcomm demanded from Broadcom for an exhaustive license to two video compression patents over which Qualcomm sued Broadcom for infringement – but which a federal jury later found Broadcom did not infringe. Even though the ’983 patent has been judged valid and infringed, Broadcom chose to make its royalty offer at a rate and per unit cost less than Qualcomm’s specifically to avoid any argument about whether the offer is reasonable. The proposed ’983 royalty is also a tiny fraction of the revenue that carriers expect to achieve in relation to each handset sale. Moreover, Qualcomm will still make a substantial profit on its sale of 3G cellular chips.
“Broadcom has prevailed against Qualcomm in every legal venue in which our patent disputes have been tried. Yet Qualcomm’s response has not been to come to the negotiating table like a responsible company. Instead they turn to the U.S. Government with a request to bail out Qualcomm and its customers for free,” Mr. Dull continued. “As we have said repeatedly over the past two years, Broadcom simply wants to be adequately compensated for the use of our intellectual property and to be able to compete fairly in the cellular markets on the merits and innovation of our products and technologies, as we do in every other market in which we compete.”
“Qualcomm’s decision to tap into highly emotional public safety concerns and other high level public policy issues in this instance, for purely business purposes, while thumbing its nose at the idea of paying Broadcom for the use of our technology and intellectual property, is cynical, disingenuous and wrong,” Mr. Dull concluded. “Market forces will drive an appropriate resolution here. The President does not need to get embroiled in this simple business negotiation.”
Broadcom Corporation is a major technology innovator and global leader in semiconductors for wired and wireless communications. Broadcom products enable the delivery of voice, video, data and multimedia to and throughout the home, the office and the mobile environment. We provide the industry’s broadest portfolio of state-of-the-art, system-on-a-chip and software solutions to manufacturers of computing and networking equipment, digital entertainment and broadband access products, and mobile devices. These solutions support our core mission: Connecting everything(R).
Broadcom is one of the world’s largest fabless semiconductor companies, with 2006 revenue of $3.67 billion, and holds over 2,000 U.S. and 800 foreign patents, more than 6,000 additional pending patent applications, and one of the broadest intellectual property portfolios addressing both wired and wireless transmission of voice, video and data. Broadcom is headquartered in Irvine, Calif., and has offices and research facilities in North America, Asia and Europe. Broadcom may be contacted at +1.949.926.5000.