Broadcom misfires -- this time

When Broadcom filed suit against Qualcomm last October, it was the latest attempt by the Orange County low cost chip producer to force Qualcomm to change its business model.

Qualcomm announced last week that the suit was dismissed by the US District Court. However, if I were still a Qualcomm shareholder, I’d still be a little worried.

The suit was an opportunistic effort to use the SCOTUS decision in Quanta v. LG as a cudgel. As USD Law Prof. David McGowan analyzed the Broadcom complaint in this blog last November

The complaint alleges Qualcomm double-dips by charging handset manufacturers a royalty on both chipsets and handsets. Qualcomm may earn chipset royalties through sales to handset manufacturers or from licenses to competing chipset manufacturers such as Broadcom. It also charges a royalty directly on handsets.

Broadcom claims the Quanta case holds that a patentee may not charge downstream royalties beyond the first sale of its technology. This claim implies Qualcomm may either charge handset manufacturers a royalty for the handset or for a chipset (directly from Qualcomm or indirectly from Broadcom) but not both. Broadcom is asking the court to declare that it need not pay royalties to Qualcomm when Broadcom sells chipsets to handset manufacturers who pay Qualcomm royalties on handsets.

Even for a law professor (who are generally cautious about predicting court outcomes), McGowan saw the case as too close to call:

It is hard to say what is likely to happen. Quanta dealt with an unconditional license and Qualcomm has said its licenses are expressly conditional. The Court did not rule on such licenses. The district court therefore is not bound to rule for Broadcom. If one read the Supreme Court as sending the signal that patentees should only be able to engage in one transaction per product, though, one could extend Quanta to reach the result Broadcom seeks.

There isn’t much coverage of the ruling online, of which the Telephony Online explanation is the most incomplete:

US District Court Judge William Hayes, however, rejected Broadcom’s reasoning, ruling that Broadcom provided no specific of exhausted patents and that the purported damages Qualcomm has wrecked upon the industry were too speculative.

So I’m no law professor and in fact never went to law school, but the case was clearly dismissed on procedural grounds, not on a question of law; Broadcom’s legal claim was never tested. To me this suggests that the Broadcom case was rushed to court, without bothering to document specific patents and to find a putative victim. Obviously we don’t know what happens within Broadcom’s legal team, but this seems like the sort of weakness that a first year associate could have spotted before the case was filed.

I don’t know the specifics of the ruling, so it’s not clear whether the complaint was dismissed with prejudice, and if so, whether it prevents Broadcom from ever filing another patent exhaustion claim again. Even if so, one of Qualcomm other rivals might want to pick up the cudgel.

Telephony Online noted that Nokia filed a similar complaint that was thrown out (but that was pre-Quanta.) Nokia and Qualcomm now claim to be friends, so perhaps for now Nokia will train its legal guns on InterDigital rather than Qualcomm.

But Qualcomm’s business model and market share leave no shortage of enemies. If not Broadcom or Nokia, another possibility is TI — which was the world’s largest supplier of wireless communications chips until Qualcomm passed it last year. Finally, there are the Koreans, who never stop complaining about CDMA royalties and (like Broadcom) have been looking for any possibility to reduce the checks they send to San Diego.