November 14, 2005
Another Fine Kettle of Fish - Qualcomm vs Broadcom
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Jack Horgan - Contributing Editor

by Jack Horgan - Contributing Editor
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These editorial pages have given extensive coverage to legal issues such as patent infringement, theft of trade secrets, employment contracts and relationship with standard making organizations that beset the EDA and electronic industries.

The coverage has been both of a general nature and of specific instances, e.g. Synopsys versus Magma and Rambus versus multiple. This time the focus is Qualcomm, a major player in the technology underpinning cell phones and a consumer of EDA products and services. There are parallels to the Rambus case.

When a firm has a portfolio of patents it may adopt a number of strategies. It may cross license patents with other patent holding firms, it may licenses its patented technology to others including to competitors, it may reserve the technology for competitive advantage, it may donate technology to a standards making organization or consortium or it may adopt a combination of strategies. Presumably the decision will be based on the greatest benefit to the firm. Licensing technology to a competitor may be more advantageous in the long run than forcing that competitor to develop or seek alternatives elsewhere. Some firms buy failing firms for their intellectual property with absolutely no
intention of producing and selling any product. They use the patent portfolio and the treat of a lawsuit to exact licensing fees. SCO may be considered an example of this practice. In 1995 through an asset purchase agreement SCO acquired UNIX “IP”, the UNIX business and source code from Novell who had acquired it from AT&T. SCO has gone after Linux on the grounds that some of its UNIX source code had found its way into the Linux kernel.

IBM has so many patents in the computer arena, it is difficult to believe that any new computer design would not infringe on many of its patents. It would be difficult to determine if a new design accidentally infringed on any patent ever granted to anyone. Some patents are so broad, mistakenly broad in the opinion of many people, that the mere act of breathing is probably an infringement of some patent. I know a firm, MAGI, that had a patent of transmitting an image to a workstation. If one is applying for a patent, it is comparably easy although not foolproof to determine what prior art exists. In that case the search is narrow. As has been pointed out in previous editorials, the
Patent Office does not determine whether prior art exists. They rely on the filer to uncover and disclose prior art and later on those impacted by a patent to make the case that a patent should be rendered invalid.

Qualcomm was founded in 1985. In 1989 they introduced Code Division Multiple Access (CDMA) technology for wireless and data products. Today, QUALCOMM's patent portfolio includes more than 3,900 United States patents and patent applications for CDMA and related technologies. CDMA is the foundation for the two most widely adopted 3G standards - CDMA2000 and WCDMA (UMTS). QUALCOMM has patent license agreements with more than 125 manufacturers for the cdmaOne and CDMA2000 standards and with more than 50 manufacturers covering the WCDMA and TD-SCDMA standards.

Qualcomm has shipped two billion chips since 1996 when it delivered the first commercial CDMA solutions to wireless handset and infrastructure customers. It has shipped one billion chips since 2003. QUALCOMM solutions power a significant number of the more than 740 commercial CDMA2000 and WCDMA (UMTS) wireless devices available today. There are more than 150 CDMA2000 1X, CDMA2000 1xEV-DO and WCDMA operators in 71 countries who currently support more than 210 million 3G subscribers around the world.

In fiscal 2005, the period ending September 25, 2005 Qualcomm had revenues of $1.56 billion and net earnings of $538 million. Qualcomm is divided into multiple business segments. The QCT (Qualcomm CDMA Technologies) segment develops and supplies ICs and system software for wireless voice and data communications, multimedia functions and global positioning products. The QTL (Qualcomm Technology Licensing) segment receives revenue from licensing fees as well as ongoing royalties based upon worldwide sales by licenses of products incorporating or using the firms IP. The QWI (Qualcomm Wireless & Internet) segment provides technology to support and accelerate the growth of the wireless data
market. In fiscal 2005 QCT, QTL and QWI accounted for approximately 57%, 32% and 11% of total revenue respectively.

In May 2005 Broadcom filed suit against Qualcomm alleging that Qualcomm's products infringed on 10 patents. Broadcom also filed a complaint with the US International Trade Commission (ITC) claiming that Qualcomm is importing microprocessors that infringe its patents and thereby violating section 377 of the Tariff Act of 1930. According to the Hawley-Smooth act imported products that allegedly violate US intellectual property rights can be barred from entry into the country. Broadcom's complaint requested a cease and desist order to bar further sales of infringing products that have already been imported into the United States by Qualcomm. The ITC is likely to hand down its final
determination in the second half of 2006.

Broadcom founded in 1991 is one of the world's largest fabless semiconductor companies. Over the last four quarters Broadcom had revenue of $2.4 billion and net earnings of $287 million. The firm provides manufacturers of computing and networking equipment, digital entertainment and broadband access products, and mobile devices with a broad portfolio of SoC and software solutions.

In early July Broadcom filed a complaint in US District Court asserting that Qualcomm had violated US antitrust laws. The alleged violations relate to Qualcomm's abuse of the wireless technology standards-setting process, its failure to meet its commitments to license technology for cellular wireless standards on fair, reasonable and non-discriminatory terms, and various anticompetitive practices of Qualcomm in the markets for cell phone technology and chipsets.

Louis M. Lupin, senior vice president and general counsel of QUALCOMM. "This case, like the earlier patent cases filed by Broadcom against QUALCOMM, appears to be a desperate attempt by Broadcom to gain bargaining leverage through meritless litigation. Because Broadcom does not hold essential patents for the important cellular standards, Broadcom must feel compelled to resort to these kinds of measures rather than continuing to negotiate for licenses in good faith. Broadcom's unfortunate preference for the litigation forum rather than the negotiating table will require QUALCOMM to proceed with litigation of its own."

Mr. Lupin pointed out Broadcom has a history of initiating litigation and ITC proceedings that do not turn out well for the company. Broadcom's patent litigation and ITC proceedings against Intel resulted in Broadcom's paying Intel a $60 million settlement in 2003. Similarly, Broadcom filed patent claims against Microtune, Inc. in court and in the ITC with the outcome a $22.5 million settlement payment from Broadcom to Microtune in 2004. Broadcom's patent infringement claims against Agere Inc. suffered a similar fate with Broadcom reporting a $27.5 million charge to settle that litigation late last year.

On July 11 Qualcomm filed suit against Broadcom for infringement of seven QUALCOMM patents. QUALCOMM's lawsuit asserts infringement of patents that are “essential” to the manufacture or use of equipment that complies with the GSM, GPRS and EDGE cellular standards (the “GSM Standards”) and to certain interoperability standards for wireless local area networks popularly known as Wi-Fi. Patents that are “essential” to a standard are those that must necessarily be infringed to comply with the requirements of the standard. QUALCOMM's complaint states that Broadcom is infringing six of the patents by the manufacture and sale of integrated circuits for use in
GSM Standards handsets and is infringing the remaining patent by the manufacture and sale of semiconductors for Wi-Fi devices. QUALCOMM seeks an injunction against Broadcom's continued manufacture and sale of these products as well as monetary damages.

In mid-October Qualcomm filed a second suit against Broadcom charging Broadcom with infringing two of Qualcomm's patents. One of the patents describes an image-compression technology and the other video encoding and decoding.

On Oct 28, 2005 Broadcom Ericsson, NEC, Nokia, Panasonic Mobile Communications and Texas Instruments each filed complaints to the European Commission requesting that it investigate and stop Qualcomm's anti-competitive conduct in the licensing of essential patents for 3G mobile technology.

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-- Jack Horgan, Contributing Editor.


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