Qualcomm hit with contempt of injunction in Broadcom case

By Scott M. Fulton, III | Published November 18, 2008, 1:54 PM

In one of the world's longest-running and most reliably even stalemates, a federal judge in Santa Ana may actually have scored Broadcom a blow against rival Qualcomm that could draw a little blood, in the form of back royalties.

Last January, US District Court Judge James Selna imposed an injunction against the sale of Qualcomm-brand chips in the US, using technologies that were already found in 2006 to have infringed upon intellectual property held by arch-rival Broadcom. But in an act of graciousness that's typical in such cases, Judge Selna stayed his own injunction, on the condition that while some orders for Qualcomm chips were already in shipment and could not be stopped without perhaps a naval blockade, Qualcomm pay Broadcom 4.5% royalties on those sales in progress.

While Qualcomm apparently did start paying such royalties in the case of a shipment of parts to Motorola, it stopped doing so later in the year. It defended its actions by saying that although orders from AnyData, Kyocera, LG, Motorola, and Samsung were indeed placed in the United States, shipments of parts were not to the United States; and exactly what these customers do with those parts after they put them in cell phones and handsets, is something Qualcomm can't exactly track.

Furthermore, Qualcomm said it thought the injunction only applied to CDMA2000- and EV-DO-related chipsets that would be used in devices with wireless radios, not any other class of device that customers might have in mind

Yesterday, Judge Selna didn't buy those arguments, deciding to hold Qualcomm in contempt of the injunction order. As a result, he penalized Qualcomm as much as $1.86 million in back royalties, payable within 60 days. Qualcomm was also ordered to retrieve any chips currently in transit sold to unallowed, or non-sunset, customers within 45 days.

And rather than make the 4.5% royalty rate permanent, Judge Selna ordered Qualcomm to effectively disgorge itself of its profits from the sale of those chips -- 100% of it -- to Broadcom.

"With respect to any chips not recovered and destroyed within 45 days hereof, Qualcomm shall pay Broadcom its gross profits on such sales within 60 days hereof," Judge Selna wrote. "The Court finds the sales to non sunset customer to be egregious. Imposition of a royalty is conceptually unwarranted because of the implied license which would arise. The Court finds that this violation presents equal or greater culpability than the violation of the '010 Patent which the Court previously found. The gross profits remedy strips Qualcomm of a profit it never should have earned in the first place."

According to the judge's order, Qualcomm reaped about $41.5 million in revenue from the sale of chips to non-sunset customers since January. Gross margins for the company have typically hovered a bit over 70%, so the order could end up becoming a substantial fine for Qualcomm.