Dave Mock
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Qualcom takes another legal blow

Posted May 30th 2007 2:10PM by Dave Mock (RSS feed)
Filed under: Deals, Competitive Strategy, Nokia Corp. (NOK), QUALCOMM Inc (QCOM), Broadcom Corp'A' (BRCM)

The news hasn't been good for Qualcomm Inc. (NASDAQ: QCOM) lately in its myriad lawsuits with Broadcom. Its most recent setback occurred in Santa Ana, California as the San Diego company lost a dispute with Broadcom Corp. (NASDAQ: BRCM) over three patents that Qualcomm has now been declared as willfully infringing. The news came on the heels of an expected ITC resolution (that was again delayed, this time to June 7) on whether to ban phones containing Qualcomm's chipsets that have been determined to violate another Broadcom patent.

This most recent case centered around five patents that Broadcom acquired and then asserted against Qualcomm. By the end of the litigation phase, Qualcomm was found to infringe upon three patents broadly covering topics of video encoding, network management, and hierarchical networks. Broadcom was awarded $19.6 million in damages, but this value could be tripled as the infringement was determined to be willful.

With no compromise yet reached on a licensing deal to cover the extent of products that Broadcom sells, the company has been methodically attacking Qualcomm's intellectual property base. Both Broadcom and top handset supplier Nokia Corp. (NYSE: NOK) hope to demonstrate legally and in the court of public opinion that they deserve more equal footing with Qualcomm in terms of intellectual property, and should not have to pay significant royalties to Qualcomm.

With the additional leverage, though minor, that Broadcom is achieving through court victories, I wonder at what point it makes sense for Qualcomm to buy Broadcom outright, or conclude some sort of merger. While there may be obstacles or egos in the way, I think Broadcom would be a good compliment to Qualcomm's strategy of becoming more than just a kingpin in the cellular and CDMA markets. Both companies are organized around an elite engineering core with proportionally more advanced degrees in their ranks than many other tech companies, aligning their core R&D centers.

Should the two companies take off their gloves and come to terms of even a strategic partnership, it will go a long way towards helping Qualcomm fend off Nokia and the rest of the industry that wants to dismantle Qualcomm's business and limit its influence in the lucrative wireless markets.

Dave Mock is author of The QUALCOMM Equation and an analyst with Pacific Ridge Capital.

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