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ITC Kicks Qualcomm Where It Hurts

Qualcomm's business centers on its 3G wireless technology and the patents pertaining to that technology. Qualcomm has been tangling with Broadcom and Nokia over some of those patents. Yesterday, the International Trade Commission sided with Broadcom and banned certain Qualcomm-manufactured devices and circuits from entering the U.S. that use technology patented by Broadcom. If upheld, the potential fallout for the entire wireless industry is enormous.

Specifically, the ban states:

The Commission is issuing a limited exclusion order that bars the importation of Qualcomm's infringing chips and chipsets and circuit board modules or carriers containing them. In addition, the exclusion order bars the importation of certain handheld wireless communications devices, such as cellular telephone handsets and personal digital assistants ("PDAs"), that contain Qualcomm's infringing chips and chipsets. The exclusion order does not apply to handheld wireless communications devices that are of the same models as handheld wireless communications devices that were being imported for sale to the general public on or before the date of the order, June 7, 2007. However, the order does bar the importation of new models of handheld wireless communications devices that contain Qualcomm's infringing chips and chipsets. Thus, the order "grandfathers" models of handheld wireless communications devices being imported into the United States for sale to the general public on or before June 7, 2007.

So, any 3G devices that already have entered the country are safe for the time being. The ban only affects any future devices or technology that might enter the United States. This means no new phones for Verizon Wireless, Sprint Nextel, Alltel, and their MVNO partners. AT&T and T-Mobile will continue to release new phones using GSM technology that doesn't include Qualcomm's WCDMA 3G chips. Phones that already are available for sale may continue to be imported.

This is huge. Verizon's iPhone killer? Whatever it is, unless it's already sitting in warehouses somewhere in the U.S., it won't be released. The far-reaching implications are boggling. AT&T and T-Mobile can refresh portions of the line-ups, but Verizon, Sprint, and Alltel will be limited to their current line-ups of devices until new products using different technology can be designed, manufactured, and shipped to the United States. This would tip the balance toward AT&T and T-Mobile and produce an unfair competitive advantage.

And that's just the carrier angle. The ban would be equally damaging to phone manufacturers that use Qualcomm 3G technology. Kyocera, LG, and Samsung would take it on the chin pretty hard. Motorola would, too, to a lesser extent.

Whether or not the ban will be upheld, though, is uncertain. Qualcomm said it would ask the president to veto the decision. Verizon Wireless and others will likely join Qualcomm in that request. If it is upheld, Qualcomm would have little choice but to license Broadcom's patents if it wants to continue using the offending technology. This would probably be the best -- and quickest -- resolution for the industry in general.

One thing is for certain, Steve Jobs is probably breathing a sigh of relief that Verizon Wireless passed on the iPhone. And in fact, if the iPhone had included WCDMA 3G technology, it might have been barred from entering the United States. Imagine all that pent-up demand, only for Apple fanboys to have the rug pulled out from under their feet at the last minute...

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