It's not over: Broadcom files a new suit against Qualcomm

Can a company with patent rights over a technology charge royalties to anyone who uses that technology...even as it's passed down from reseller to retailer to customer? Recently the Supreme Court said no, and that gave Broadcom an idea.

There for awhile, it really did look as though the legal disputes between the two biggest names in the field of wireless technology licensing, were finally unraveling themselves into something resembling resolution...if not just sputtering out altogether. But as it turns out, a US Supreme Court ruling in a case involving two other parties has breathed new life into Broadcom's hopes attaining full litigation superiority, in its interminable fight with Qualcomm.

The case which perked Broadcom's ears was Quanta v. LG Electronics, which was decided by the high court last June. At issue there was whether LG had a right to charge Quanta royalties for chips that Quanta purchased from Intel, after LG had already charged Intel royalties as well. Could LG legitimately "double-dip?" After much tussle on the subject, an appeals court had decided yes, it could, because LG would never have licensed its technology to Intel had it not known Intel would resell its chips to someone else, like Quanta.

The Supreme Court disagreed, overturning the appeals court completely. "The authorized sale of an article that substantially embodies a patent exhausts the patent holder's rights and prevents the patent holder from invoking patent law to control post-sale use of the article," wrote the high court last June (PDF available here). "Here, LGE licensed Intel to practice any of its patents and to sell products practicing those patents. Intel's microprocessors and chipsets substantially embodied the LGE Patents because they had no reasonable noninfringing use and included all the inventive aspects of the patented methods. Nothing in the License Agreement limited Intel's ability to sell its products practicing the LGE Patents. Intel's authorized sale to Quanta thus took its products outside the scope of the patent monopoly, and as a result, LGE can no longer assert its patent rights against Quanta. Accordingly, the judgment of the Court of Appeals is reversed."

In the first paragraph of its latest lawsuit, filed yesterday in US District Court for Southern California, Broadcom wasted zero time citing the Supreme Court's decision. In fact, from the second sentence of the first paragraph, Broadcom actually appeared to be hoping that the District Court would confuse the two "Q's."

"Under the Supreme Court's decision...when Qualcomm sells a chipset for a wireless-communications device, this sale 'exhausts' all of Qualcomm's rights in patents that are substantially embodied by this chipset -- 'terminat[ing] all patent rights to that item...' Yet Qualcomm has taken the illegal position that its patent rights are never exhausted by such sales."

Broadcom went on to characterize Qualcomm's royalties system as a "double-recovery scheme," by charging chipset manufacturers once and then charging handset manufacturers who purchase those chipsets once again. But with Broadcom as a direct competitor to Qualcomm, how is it harmed by this?

"Qualcomm's misuse of its exhausted patents has brought Qualcomm a financial windfall -- and brought harm to the industry, consumers, and Broadcom specifically," states Broadcom's lawsuit. "It has done so, for example, by draining money out of the industry that could be used to foster innovation and competition; by imposing licenses with discriminatory terms that favor Qualcomm over its competitors, such as Broadcom; and by forcing companies such as Broadcom to choose between taking a Qualcomm license that would implement Qualcomm's double-recovery scheme or operating under the threat of infringement suits by Qualcomm."

There's another intriguing implication here: Under the theory that Qualcomm double-charges for royalties and Broadcom doesn't, Qualcomm could conceivably afford to charge chipset customers less than Broadcom for similar or competitive technologies, knowing that it can still take home more income down the road from customer #2.

Broadcom is seeking the court's invalidation of the Qualcomm patents for which it allegedly double-charges. Qualcomm told Dow Jones' Roger Cheng yesterday that it does not believe Broadcom's allegations accurately reflect Qualcomm's licensing practices, and that it may be mis-stating the law.