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When the Chips Are Down

Alan Sipress

3G is the next wave in cell phone technology, an advance that is already allowing users to exchange email, browse the Web and, most notably, watch video on their phones. For providers of cell phone service, 3G is the future.

But that future has recently grown uncertain.

In the relatively obscure International Trade Commission of all places, a long-running patent dispute is approaching its denouement with the fortunes of Verizon and Sprint Nextel in the balance.

Neither is a direct party to this battle. But to sell their 3G service, both companies rely entirely on imported phones built with a technology found by the ITC to be in violation of a U.S. patent. The commission is now weighing whether to issue an exclusion order banning these phones altogether from entering the United States.

"The stakes are tremendously high," analyst Rebecca Arbogast of Stifel Nicolaus told me. "Verizon and Sprint Nextel are going to be in a major predicament if the ITC issues a downstream exclusion order."

The dispute pits semiconductor maker Broadcom against wireless-equipment maker Qualcomm. The two have sued and counter-sued each other for patent violations in venue after venue, both here and abroad.

Two years ago, Broadcom hauled Qualcomm before the ITC, arguing that the Qualcomm chips in phones made overseas by companies like Motorola and Samsung use a battery-saving technology patented by Broadcom and should be barred from the United States. Qualcomm has acknowledged it could take time, maybe two years or more, to redesign the chips without the disputed technology. Since nearly all the Qualcomm chips entering the country are built into phones, Broadcom has asked the ITC to ban not just the chips but the phones too.

By all indications, the commissioners are trying to walk a fine line that respects Broadcom's rights without dealing a whopping setback to Verizon and Sprint, which depend entirely on phones containing Qualcomm chips. (AT&T Cingular, another big mobile phone service, would also be affected. But because some of its phones use a different technology, AT&T Cingular could potentially turn to another source.)

A decision had been expected in two weeks. But the ITC announced Monday it would delay the ruling until May 25. That was the latest sign, Arbogast said, that the commissioners are having an awfully hard time threading this needle.

By Alan Sipress  |  April 26, 2007; 7:00 AM ET  | Category:  Alan Sipress
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Please email us to report offensive comments.

When the chips are down, the bull is empty.

These sorts of things always get settled with a nice payoff. I just don't see it going any other way.

Posted by: Chris | April 26, 2007 10:35 AM

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