It's finally settled: Broadcom and Qualcomm lay down their swords

The mobile communications industry can now pursue 3G technologies without fear of being caught in a whirlwind patent dispute. That's the outcome reached last weekend when Qualcomm agreed to settle its remaining disputes with Broadcom, in a deal which (at least at first glance) will net Broadcom $891 million over four years.

Qualcomm's incentive to settle was becoming obvious. In the current economy, a business plan built on the hopes of revenue from a big settlement from Broadcom or an unprecedented judgment in its favor, were becoming untenable. That point was driven home this morning when the company released its quarterly revenue numbers: Though revenue only declined by a mere 5.8% annually -- actually a noteworthy achievement -- net income could have ended up as high as $702 million, a decline of 22%. But the cost of putting this case behind it -- which only includes its initial payment to Qualcomm -- cost Qualcomm $748 million in this quarter alone, forcing it to post a net loss of $46 million.

So did Broadcom win? If it has, then it hasn't won very much, certainly not in terms of prestige or honor or upholding the principles it tried to appear to stand up for not so long ago.

As it turned out, this case followed what's now becoming a familiar pathology: One side claims it was wronged, and is acting for the good of the entire industry by standing firm against the designs of an evildoer. Then the other side countersues, and in so doing, exposes the dirty laundry of the plaintiff, creating an ironic twist that makes it difficult for anyone to stand on principle only. Eventually, both sides call it off out of embarrassment, and in an effort to diffuse the bombs they themselves have created, jointly proclaim their principles weren't so big a deal after all.

Had either Qualcomm or Broadcom actually "won" this dispute, the rules which govern the production of 3G cellular communications would have changed drastically. But after nearly five years of this battle, the best either side was managing to achieve was a calculated stalemate.

If all you had read about this case was last night's joint statement, you'd never know that at the center of this argument were many of the same issues that gave such color to the debate over Microsoft's effort to standardize its Office software file format: Can a corporation use its influence over standards agencies to force an industry to adopt proprietary technologies?
The first sign of a real crack in the dam came in August 2007, when US District Judge Rudi Brewster effectively ruled that Qualcomm did use its influence as a member of the industry-wide Joint Video Task force to drive adoption of certain elements of the H.264 video encoding standard that led directly to the use of Qualcomm patents. Then it used litigation tactics to shield that misconduct. That much of Judge Brewster's finding did survive appeal last December.

But the issue at the center of Qualcomm's countersuit was similar: Although both Broadcom and Qualcomm manufacture components for all types of 3G handsets, Qualcomm has been the champion of CDMA while Broadcom is perceived as the standards-bearer for the European preference, GSM. Both standards are capable of utilizing the same alternative approach to a concept proposed by Motorola for enabling the same spectrum to carry more simultaneous signals. But that approach, called time-division multiple access, is part of the heart of GSM technology, while it may or may not be a co-existing add-on to CDMA (code-division multiple access). Think of CDMA as spreading signals over a wider spectrum, while TDMA allocates time-slices for specific signals within a given band.

Qualcomm claimed it had developed TDMA first, and that Europe's and Broadcom's adoption of it without compensating its rightful creator, was unfair. Meanwhile, Broadcom has been working since the previous decade to utilize the same concept in 4G technologies, as Advanced-TDMA (which can co-exist with DOCSIS 3.0), demonstrating that TDMA was not simply a solution to a dilemma specific to CDMA.

While some observers have stated their belief that the whole 3G topic is dying anyway, and that's why both sides decided to give things a rest, the fact is that when you look at the growth of portable technologies with respect to how much data they deliver, 3G is growing faster than 4G, and may continue to do so for the foreseeable future. This was a conclusion drawn last February by Cisco, which sees global traffic growth for both 3G and 4G technologies growing pretty much in proportion with one another, at a rate of over 100% per year up through 2013, with 4G growing at a slightly greater rate. That's not so much a factor of the number of users as how much data they consume.

So last weekend's settlement sets up the new rules for a continuing market in 3G technologies. Both sides agree that if a manufacturer builds a handset or a device using either Broadcom or Qualcomm products, that manufacturer does not immediately become the customer of the other manufacturer. That may be the most important decision the two companies have made, for one reason because now manufacturers such as Motorola and Nokia -- Qualcomm's other favorite courtroom nemesis -- won't have to set aside funds in case they end up owing back fees for licenses they didn't know they'd have to purchase.

But the other reason is because the two companies have established clear boundaries for themselves, enabling the 3G technology market to flourish and grow at least as fast as Cisco predicts it will.

To mark the occasion this morning, Broadcom announced it would create a $50 million fund to support math and science educational programs around the world. Consider this the ceremonial tree planting, in a midst of a burnt and ravaged forest.