Qualcomm, Broadcom reach $891 million deal to end lawsuits

Wireless chip maker Qualcomm Inc has agreed to pay smaller rival Broadcom Corp $891 million over four years to settle long-standing and increasingly bitter legal battles over technology patents.

Under a deal announced late on Sunday, the two Southern California chip suppliers agreed to end their litigation and exchange rights to each others' patents. Besides ending patent suits in the US, Broadcom agreed to drop antitrust complaints it has filed against Qualcomm in Europe and South Korea.

The deal is expected to help Broadcom become a more significant supplier of chips for cellphones, a market in which Qualcomm plays a pivotal role because of its control of key patents. Broadcom is a major supplier of communications chips but is a newcomer to the cellular arena.

"At a time when the wireless industry should be focused on moving forward, the agreement removes uncertainty for Qualcomm and its customers," said Paul Jacobs, Qualcomm's chief executive, in a statement.

Qualcomm disclosed Wednesday that it was in advanced talks about a "global settlement" of the disputes with Broadcom. The surprise development caused Qualcomm to postpone the release of its second-quarter results, which had been scheduled that day and are now expected to be announced Monday morning.

One obstacle to Broadcom's plans in the cellular chip market was the need to negotiate a patent license with Qualcomm, which receives patent royalties from chip makers and cellphone makers that use third-generation, or 3G, networks.

To put pressure on Qualcomm to grant favourable licensing terms, Broadcom filed multiple patent suits and other litigation against Qualcomm. Though Qualcomm filed suits of its own against Broadcom, the latter had chalked up more court victories so far.

Broadcom had argued in court that Qualcomm did not have the legal right to charge royalties both for cellphones and the chips inside them, under a principle known as "patent exhaustion".

Under the settlement, Broadcom will not have to pay Qualcomm patent royalties on the chips it sells. "Other than the payment we are making, neither of us is making ongoing payments," Rosenberg said.

Qualcomm's payments to Broadcom include $200 million that will be paid in the current quarter, ending 30 June, the companies said. "We have set aside our differences while addressing the needs of our customers, our shareholders and the industry," said Scott McGregor, Broadcom's chief executive, in a statement.

The settlement will result in the dismissal of all litigation between the companies, including patent infringement claims Broadcom brought against Qualcomm at the International Trade Commission and a court in Santa Ana, California.

The companies also agreed not to assert patents against each other for their respective chip products and certain other products and services; and Broadcom said it will withdraw its complaints against Qualcomm to the European Commission and the Korea Fair Trade Commission as part of the deal.

Rosenberg said San Diego-based Qualcomm decided to shoulder the payment because it wanted to put the battle behind it as legal bills mounted with no clear end in sight for what was a distraction for management, legal and engineering resources.

 "The goal here is to eliminate the need for litigation going forward," said Rosenberg, adding that lawyers had been working around the clock at Qualcomm and Broadcom for a couple of weeks in the hope of reaching an agreement.

Qualcomm, which makes a large part of its profits from selling licences that draw on its wireless technology patents, said the agreement will not change its licensing revenue model for existing 3G wireless technologies or for emerging fourth generation technologies.

For example, even if Qualcomm does not assert patents against Broadcom, it can still collect royalties from customers of Broadcom's cellphone chips, Rosenberg said.