Wireless chip supplier Qualcomm Inc agreed to pay smaller rival Broadcom Corp $891 million over four years to settle long-standing and increasingly bitter legal battles over technology patents.
Qualcomm, which has lost several key battles in patent infringement cases with Irvine, California based Broadcom in the last few years, said on Sunday it would make its first payment of $200 million to Broadcom in the current quarter.
On Thursday, Qualcomm had rescheduled its quarterly earnings call at the last minute saying it was in advanced settlement talks with Broadcom, with which it had been fighting since 2005 in a battle spanning three continents.
Charter Equity Research analyst Ed Snyder said it made sense for Qualcomm to end the legal uncertainty even though this was a big payout for Qualcomm, which analysts expect to report quarterly revenue of $2.35 billion on April 27.
It's clearly costing Qualcomm a lot but it's best for both companies to move on. said Snyder. It's a win for Broadcom.
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.
The settlement does not necessarily mean that the Korean and European regulators drop their investigations. But Qualcomm general counsel Donald Rosenberg told Reuters in a interview he hoped they would look favorably on the Broadcom deal and on Qualcomm's settlement last year with leading cellphone maker Nokia after their drawn out legal fight.
DISTRACTION FOR MANAGEMENT
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.
Rosenberg also said he was worried that a recent a ruling in the companies' Santa Ana case had the potential to widen the scope of an injunction against Qualcomm on the sale of products that were found to infringe on a Broadcom patent. The worry was that it could have ended up disrupting customers, which include cellphone makers and wireless network operators.
We'd become increasingly troubled by some of the court's rulings in that case that we felt threatened to broaden the scope of the injunction, he said, describing one part of the reasoning behind the deal. The strongest element was the desire on both our parts to focus on our businesses.
Qualcomm, which makes a large part of its profits from selling licenses that draw on its wireless technology patents, said the agreement will not change its licensing revenue model for existing third generation high-speed 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.
(Additional reporting by Paritosh Bansal in New York and Gina
Keating in L.A.; Editing by Anshuman Daga)