Verizon-Broadcom deal allows continued imports

Broadcom and Verizon Wireless have reached a deal that will allow Verizon to continue importing and selling phones that are the subject of continuing litigation between Broadcom and Qualcomm.

On June 7, the U.S. International Trade Commission (ITC) banned the importation of new models of phones and PDAs that hit the market after that day and include certain Qualcomm chips. Broadcom had sued the rival mobile chip vendor over alleged patent infringement.

Under a licensing agreement, Verizon will pay Broadcom $6 for every handset, PDA, or data card that uses EvDO (Evolution-Data Optimized) mobile broadband technology. The carrier will make the payments up to a ceiling of $40 million per calendar quarter and a lifetime maximum of $200 million. As part of the deal, Verizon also will drop an effort to overturn the ruling. Other terms are confidential, according to a statement released by the two companies.

The move is a blow to Qualcomm, which pioneered the CDMA technology on which EvDO is based. Verizon is the largest carrier in the U.S. using EvDO. It will pay Broadcom to license technology that Qualcomm has argued does not belong to Broadcom in the first place.

In addition to the licensing deal, Broadcom has entered a strategic alliance with Verizon Communications, the parent company of Verizon Wireless. That deal covers new mobile device chipsets as well as Bluetooth, wireless LAN, optical network, GPS, DSL, fiber, set-top box, and home network equipment components. Broadcom, in Irvine, California, makes chips for a wide range of wired and wireless network products. Qualcomm, in nearby San Diego, is focused on wireless technology.

Qualcomm said last month it would try to convince President George Bush to overturn the June 7 ruling, which was effective immediately. Bush has 60 days to decide whether to take action. If he doesn't, Qualcomm could appeal the ruling in federal court.

The June 7 ruling came after the ITC ruled last year that Qualcomm had infringed on a Broadcom patent for power management technology. Broadcom had said the system is used in essentially all EvDO and Wideband CDMA phones.

Qualcomm said in a press release that the deal was positive in that it removed uncertainty for Verizon Wireless and its customers and that its terms were "far less drastic than any terms previously demanded by Broadcom from Qualcomm." However, it doesn't resolve the continued negative impact of the ITC ruling on other carriers, the company said.

The arrangement could hurt Qualcomm in several ways, according to Smith Brittingham, a lawyer with Finnegan, Henderson, Farabow, Garrett & Dunner and a former investigative attorney with the ITC.

Qualcomm's argument that the ruling should be struck down because it hurts consumers is that much weaker with Verizon bypassing the ban, Brittingham said. In addition, the deal may suggest to the Bush administration that Qualcomm itself is likely to settle with Broadcom, making an presidential intervention unnecessary.

From a business perspective, such deals could damage Qualcomm's relationships with carriers while giving Broadcom a foot in the door, Brittingham said.

"Parties that are more likely to be adversely affected are apparently now looking to strike their own deals," Brittingham said. "If a chipmaker cannot give its customers comfort and safety from litigation, then they will not be able to sell their chips."

This story was updated on July 19, 2007