June 7, 2007 7:00 PM PDT

Import ban on 3G handsets could hurt industry

An import ban on all new models of 3G wireless handsets that use chipsets from Qualcomm could cause a huge headache for several cell phone makers and mobile operators if the matter is not resolved soon.

The U.S. International Trade Commission ordered a ban Thursday on the import of all future models of phones using 3G technology from Qualcomm that have been found to infringe on a patent held by Broadcom.

In what appears to be an effort to minimize damage to the cell phone industry, the ITC applied the ban only to new models of phones that have not yet been sold in the United States. The import ban does not apply to cell phone models imported for sale to the general public on or before Thursday--the date of the order.

Qualcomm CEO Paul Jacobs said on a conference call with analysts after the decision had been released that he was "extremely disappointed" with the commission's decision.

"We believe the commission has overstepped its bounds," he said. "They grandfathered in existing models, but the ban excludes future models. And this does nothing to protect the public interest and public safety."

Qualcomm executives said there would be little impact on the company financially in the near term. But analysts agree that in the long term, a ban on the import of future cell phone models that use this technology could have a substantial impact not just on Qualcomm, but on cell phone manufacturers such as Motorola and Samasung as well as mobile operators AT&T, Sprint Nextel and Verizon Wireless.

"It's a huge issue for both handset makers and carriers," said Charles Golvin, an analyst with Forrester Research. "Carriers are counting on selling these new 3G handsets to drive greater data usage. Not being able to sell new phones will be hugely problematic to their growth, especially at a time when everyone is trying to come out with something new to compete against the iPhone."

Qualcomm is the dominant semiconductor manufacturer for two next-generation technologies--EV-DO and WCDMA--that are being used today by three of the four major U.S. operators to build their next generation of high-speed wireless networks. Verizon Wireless and Sprint Nextel use EV-DO technology. And AT&T is building its 3G network using WCDMA technology.

Last year, an ITC judge ruled that Qualcomm's chips infringed on a Broadcom patent that would help cell phones conserve power when they are looking for a signal from one of these next-generation networks.

Under the ban, cell phone manufacturers and mobile operators will not be allowed to import any future models of phones that use this technology. The ban could be particularly tough for all the major cell phone operators, which during the past several years have spent billions of dollars deploying their 3G networks. Now that they have extended wireless broadband to a large portion of their footprint, these carriers need subscribers to upgrade their handsets to new 3G versions. It's only through these new 3G-enabled devices that subscribers will be able to spend money on new data services, such as over-the-air music downloads or video services.

"It's really going to freeze innovation, or it could."
--Nancy Stark,
Verizon Wireless spokeswoman

Verizon Wireless and Sprint could be hit particularly hard because these companies are eager to find new handsets to compete against the upcoming Apple iPhone, which is scheduled to be released on AT&T's network at the end of the month. The iPhone itself won't be impacted by the import ban because it uses AT&T's slower 2.5G network. But competitors looking for devices that could compete with the iPhone will likely tout 3G speeds as an important differentiator to the iPhone. But if Verizon and Sprint can't get their hands on new phone models it could be difficult to compete.

Verizon Wireless spokeswoman Nancy Stark blasted the ITC's decision. "It's a bad order for the industry and for the millions and millions of wireless consumers who depend on wireless communications," she said. "It's really going to freeze innovation, or it could."

The ban could also be devastating to handset makers, especially Motorola, which recently announced a slew of new phones that it has designed specifically for 3G networks. While it's still unclear what the ITC will define as a "new model," it could be argued that Motorola's new versions of the Razr and Moto Q, which are all 3G-capable in their latest incarnations, could be impacted. These phones are all expected to go on sale in the United States later this year.

But Motorola maintains that it has already been working on ways to ensure that the ITC decision would not impact its business.

"The ITC decision does not impact our currently shipping handsets," Jennifer Erickson, a spokeswoman for Motorola, said in an e-mail. "Further, we want to emphasize that we do not anticipate any supply problems for our CDMA EV-DO-enabled handsets during the second quarter. As we have said previously, this is a dispute between Broadcom and Qualcomm. We expect both companies to act in the best interests of their customers and the industry to resolve this matter as quickly as possible."

The import ban could also affect other phone manufacturers, such as Samsung and LG, which also rely on Qualcomm chips in many of their 3G handsets.

Still, Samsung spokesman Kim Titus said his company isn't concerned about its ability to sell future models of phones.

"All of our current phones will not be affected, and we've been working actively with our suppliers and customers to ensure we will have a continued, uninterrupted supply of future mobile phone models," he said.

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20 comments

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iPhone
Maybe Apple knew something when they didn't make the iPhone 3G compatible...
Posted by MadKiwi (153 comments )
Reply Link Flag
Patents are insane
Let's see... most tech companies do not do patent searches because to do so could expose them to treble damages. So they apply for their own patents where applicable, and design otherwise assuming nothing infringes.

So then how in the world could a world without patents be that much different from today... minus all the huge litigation costs and headaches?

Patents are one of those things like burning witches -- people are aghast at first at the concept of abolition ("you want your children posessed and fed to the devil????") but after it happens everyone realizes it was ridiculous or superfluous in the first place.
Posted by baisa (126 comments )
Reply Link Flag
Patents mostly good
If we didn't have patents to litigate civilly, you'd surely see a world where gun slinging is still legal. Without legal rights to protect not only your physical property, but also your intellectual property, the only recourse would be to fight for it to defend your rights. An no, witch hunting and a property rights dispute is not analogous. I don't see anyone think patents are ridiculous or superfluous. It may have issues, but I highly doubt you'd want a world where anyone could come into your house and take whatever they want, just because you left your door open.
Posted by nachurboy (114 comments )
Link Flag
Good i hope it hurts
i hope all these big corporations that are so gung-hoe on keeping patents around to protect "their" hard work and innovation are all bitten by this incident... we should all sit back and laugh as these losers' money goes down the drain.

And lets make one thing clear: this will have ZERO impact on public safety as they're claiming! nobody needs a 3G radio to make them self safer...
Posted by sethwr (24 comments )
Reply Link Flag
Envy as a weapon
It's no accident that envy is one of the "seven deadly sins." Unlike
greed, which can motivate people to invent and produce profitable
products and services, envy is entirely negative. Cell phone makers
satisfy mlllions of customers, but sethwr merely satisfies his own
resentment and bitterness.
Posted by nicmart (1829 comments )
Link Flag
Patents
Well, ok so patens aren't protected, what desire is there to create something new if as soon as someone buys one copy of your software, device or whatever it is. People take it apart and manufacted the exact same thing and sell it for far cheaper than the original person can sell it for because of the research and development costs. Company's would have absolutely no motivation to create anything remotely useable or if they still created software it would be labored with such draconian DRM that if you tried to access it in anyway that the software didn't like it could self distruct. Patents protect more than just the companies. Also, I am a small business owner, and I have a patent. I am my entire company but my patend prevents people from stealing and using my code without my permission. And btw, yes it was "my" hard work that created the patent and the patent subject.

3G in and of itself does not help public safety, however their argument is less high tech phones will be sold like the ones that include GPS, which can be helpful in safety situations
Posted by CPickler (2 comments )
Link Flag
3G Chipsets
A positive aspect for the long term is that cell phone designers will start using 3G chipsets from other suppliers. Less reliance on Qualcomm, will ultimately help innovation in the cell phone industry.
Posted by ScottRay (4 comments )
Reply Link Flag
3G Chipsets
It is hard to follow your logic.

Whenever a competitor is restricted in the marketplace by legal rulings like this, it reduces innovation. Qualcomm is the leader in 3G chipsets because it is more innovative than its competitors.

Restricting QCOM will certainly help its competitors who were less innovatieve. Just how this increases innovation escapes me.
Posted by FirePig (10 comments )
Link Flag
Patent = Monopoly
Would one of you patent legal experts please explain the difference between a patent and a government granted monopoly? Isn't a patent just a monopoly to prevent others from competing against you?

It seems to me to be a rather large stretch to say that because somebody is stealing something if they copy an idea. This is especially true when you don't even need to make an attempt to implement the idea, to say nothing of trying to sell it in the marketplace, to prevent others from trying. No wonder there are so many rumors of corporations buying patents just to bury them to prevent competition to their own products.
Posted by sreynard (54 comments )
Reply Link Flag
editting?
Oops, editing challenged today. Forgot to remove the 'because'.
Posted by sreynard (54 comments )
Link Flag
Patent protection is a necessary evil
I agree with you on the negative side of patents.
However, if you work at a big corporation and you work vigorously, coming up innovative ideas for the management. Mostly the top management takes your bright ideas, but later if you find your bright ideas are rewarding your boss, not you, then what would you say? Okay, let the boss reap the benefit, and I am glad I will continue to be his workhorse. Is that fair?
Posted by Quemann (16 comments )
Link Flag
Not a patent legal expert
but the difference is simple. A patent protects others from making money off of your idea, it does not prevent them from licencing the idea and using it for their own product. The government has nothing to do with stifling competition, they just hold the patent and enforce infringement.
Posted by TucsonAlexAZ (53 comments )
Link Flag
skip 3G to jump 4G
A lot of Americans don't know that USA is much behind other countries like Korea, Japan and EU, when it comes to mobile and cellular technology.
All the latest generation of mobile phones in USA is
an old generation that was outdated 3 to 4 years in Korea and Japan. The reason is that Verizon and AT&T has enough broadband networks that don't need to run to meet 4G at a huge expense. On the other hand, Sprint has got 80% of 2.3 GhZ spectrum in USA and is striving to build 4G network by the end of 2008.
The reason is smaller markets like Korea and Japan are much easier to convert to new mobile technology becasue it is easier to shift away from the aftermarket of the conventional technology.Actually, WiMAX and EVDO are two rival technologies whose competition, if extended over a decade,will sacrifice consumers to a large extent. Their competition should come to an end and hopefuly the two technologies should find a way to mutually complement tecnological limitations. And patent infringements should be settled between parties to maximize the public good, minimize the infriger's burden and maximize the inventor's compensation.
Posted by Quemann (16 comments )
Reply Link Flag
Nice day to open a phone factory in the States
This is a ban on /imported/ phones. There's nothing to stop Samsung, LG, etc. from opening a factory in the States and using Qualcomm chips. If labour costs are too high, well, there are 12 million humans who are physically in the States but don't count as people...
Posted by spl68 (3 comments )
Reply Link Flag
The article is inaccurate. CDMA phones only are affected, not GSM
The patent only applies to CDMA's EVDO not GSM phones. AT&T and T-Mobile are NOT affected by this.
Posted by CLShortFuse (3 comments )
Reply Link Flag
wCDMA is still CDMA
The article is accurate, you are not very well informed on this issue.

Although GSM only phones are not effected by this ruling, all "future" 3G phones including wCDMA (also called 3G and UMTS) and CDMA2000 (EV-DO) will be effected. Qualcomm chipsets are used in most 3G phones (in the generic sense).

GSM is a TDMA air interface and has much more in common with the Japanese PDC air interface than it does to the wCDMA (UMTS) air interface.

CDMA is a very different air interface which is used in UMTS and CDMA2000.
Posted by FirePig (10 comments )
Link Flag
 

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