A federal patent ruling yesterday threatens to put a crimp in Christmas sales of next-generation cell phones that wireless carriers might be counting on late this year - and beyond - to spur sales.
Handset models that were being imported as of yesterday could continue to be imported, but the industry's constant race to release new gadgets makes that a small consolation for phone companies.
"It's bad for the industry and it's bad for consumers," said Nancy Stark, a spokeswoman for Qualcomm customer Verizon Wireless. "It will freeze innovation."
Current models of BlackBerrys, BlackJacks and other multifunction smart phones could be imported and used.
But Christmas-time imports of any new handset models containing the Qualcomm chips that violate Broadcom's patented power-saving technology would be halted.
Neither Qualcomm nor the carriers would say how many new phones with the offending chips are in the pipeline.
Verizon Wireless had said that nearly all new phones contain those particular chips, and Sprint Nextel has said it had plans to import about 5 million smart phones this year with the Qualcomm chips.
Both carriers rely solely on Qualcomm chips for their networks and handsets.
AT&T; relies on other technology for its network but has started using Qualcomm chips for its high-speed offerings - but not for Apple Inc.'s forthcoming iPhone.
The trade commission, in a 3-2 vote, went a step further than a staff recommendation in sanctioning the San Diego chip designer. A Broadcom executive said the commission found a compromise that gave Broadcom relief but didn't jeopardize the carriers or the public.
"We think this is a very good order," said David Rosmann, Broadcom's vice president for intellectual property litigation.
Qualcomm and much of the cellular world, though, condemned the commission and vowed to appeal to President Bush and to the Federal Circuit Court of Appeals in Washington. Qualcomm executives said they are confident about winning in both arenas.
"This decision does not protect the public interest or the public safety," said Paul Jacobs, Qualcomm's chief executive.
Verizon Wireless also plans to seek a presidential veto and a stay of the order, Stark said.
The so-called baseband chips, which provide the core of the mobile phone's increasingly versatile functions, allow customers to use smart phones and other devices to surf the Internet, check e-mail, watch video and listen to music on faster cellular networks.
An administrative law judge for the trade commission had recommended banning only Qualcomm chips, not any handsets that contain the chips. But the majority said such a ban would affect few imports and give "little or no relief" to Broadcom.
The decision is "bad news for Qualcomm" and its wireless carrier customers because they revise and turn over their handset models rapidly, said industry analyst Rebecca Arbogast of Stifel Nicolaus & Co.
"As anyone who has teenagers is painfully aware, there is so much change in the next version of cell phones that they are going to be attractive and will quickly bump up against the life cycle of current handsets," Arbogast said.
Broadcom's Rosmann said any blame should be laid at the feet of Irvine, Calif.-based Qualcomm for infringing on Broadcom's patents.
James Granelli writes for the Los Angeles Times.