Millions of new cellphones containing certain Qualcomm semiconductors could be barred from import into the US under a ruling issued on Thursday by a federal government agency in a patent dispute.
Qualcomm said the ruling by the US International Trade Commission (ITC), if it withstands an appeal, could prevent the importation into the US of tens of millions of new mobile handsets designed for the Verizon, Sprint and AT&T Wireless networks.
The agency ruled that Qualcomm, a semiconductor company based in San Diego, had infringed on a key patent belonging to Broadcom, a competing chip company based in Irvine, California, that is used in the design of chips made for advanced 3G, or third-generation, smart cell phones.
Qualcomm said that it planned to appeal immediately to the federal court to block the ruling. The company also said that it planned to appeal to US President George W. Bush, whose trade representative, Susan Schwab, has 60 days within which to veto the ruling.
The company said it sought "to avoid irreparable harm to US consumers" and injury to the economy.
Nancy Stark, a spokeswoman for Verizon Wireless, said that company would ask the White House to void the ruling and the federal appeals court to stay it.
"It's bad for the industry and bad for the wireless consumer," she said.
"It's going to freeze innovation," she said.
Tim Luke, a telecommunications industry analyst with Lehman Brothers, said that while the ITC ruling is "big," it probably does not mean any disruption in handset supplies.
Investors "will be looking for a settlement between Qualcomm and Broadcom," he said, adding that Qualcomm also might be able to find a technological fix so that it does not use the technology covered by the Broadcom patent.
Qualcomm's "fundamental business is really strong and they'll have to think of a way to work around this," Luke said.
The ITC ruled that a patent governing power management in cell phone chips that is held by Broadcom was violated.
Broadcom asserts that Qualcomm is using the power management technology without paying licensing royalties.
"This is tremendously significant," said David Rosmann, vice president of intellectual property litigation for Broadcom. "Qualcomm is either going to need to take a license or they will not be able the provide the next generation of handsets."
The ITC ruling affects only new models of handsets. Under the ruling, Qualcomm would still be permitted to deliver models that already are on the market as of Thursday, whether or not they use the patented technology.
Qualcomm officials said in a conference call with investors late on Thursday that it had been negotiating with Broadcom to establish royalty rates.
But Qualcomm officials said the rates currently under discussion were so prohibitive that, if met, would undermine Qualcomm's business model.
Paul Jacobs, chief executive of Qualcomm, said the ITC had overstepped its authority and the decision had the potential to disrupt the supply of handsets in a way that could hurt carriers and consumers.
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