SANTA ANA, Calif., Aug 15 (Reuters) - An injunction sought by Broadcom Corp BRCM.O in federal court had “the potential for significant harm” to Qualcomm Inc (QCOM.O), Qualcomm co-founder and Chairman Irwin Jacobs testified on Wednesday.
The proposed injunction, calling for Qualcomm to stop making chips that a jury found in May infringed three Broadcom patents, could cost it $2.4 billion over five years, Qualcomm said in documents filed this month with the federal court in Santa Ana, California.
Amid just the latest legal battle between the chipmaking rivals, Qualcomm shares fell 4.5 percent on Wednesday.
Last week, Judge James Selna doubled the amount the jury awarded against Qualcomm to $39.3 million and told it to pay Broadcom attorneys’ fees, citing willful patent infringement.
On the second day of the penalty phase hearing, Jacobs said he believed Qualcomm General Counsel Lou Lupin was “not correct” when he told the news media in May that the verdict would have “little effect” on the company. “Qualcomm would be harmed very substantially,” Jacobs said.
Qualcomm said earlier this week that Lupin had resigned from the company for personal reasons, effective immediately.
Jacobs said Qualcomm had not attempted to find alternatives to the infringing chips while the case was being litigated.
“I’m not sure the impact reached me and I did not take any steps,” said Jacobs, who gave up the chief executive job to son Paul Jacobs in mid-2005, shortly after the lawsuit was filed.
Jacobs also said that an 18-month phase-out period proposed by Broadcom, during which Qualcomm would be allowed to keep selling the disputed chips in exchange for a royalty while it completes a redesign, “may or may not” be enough time.
In place of an injunction, Qualcomm said in an Aug. 2 document filed with the court that it offered to pay Broadcom three times a royalty rate model that the jury used in May to calculate damages. As a result Broadcom would suffer “no hardship” for lack of an injunction, whereas a ban would cost Qualcomm $2.4 billion in revenue over five years, it said.
“Given that utterly lopsided balance, whether (Qualcomm) can absorb the substantial cost without going bankrupt is besides the point,” the document said.
Qualcomm has forecast revenue of up to $8.8 billion for its fiscal year ending in September.
A Broadcom witness on Wednesday attacked the Qualcomm counter-proposal as harmful for Broadcom’s bid to enter the U.S. cell phone market, in which Qualcomm is well established.
“Broadcom is a relatively new entry into the market ... They are going to be competing in the future for the same customers,” damages expert Michael Wagner told the court.
The patents in the case cover video compression for mobile phones, walkie-talkie-style technology, and simultaneous communication between different types of networks. A ruling is not expected until September, lawyers from both sides said.
In another patent infringement case between Broadcom and Qualcomm, the U.S. International Trade Commission on June 7 banned the U.S. sale of some phones using Qualcomm chips found to infringe a Broadcom patent.
Last week, the Bush administration said it would uphold the ITC ban after a 60-day review. Verizon Wireless, which depends on phones with Qualcomm chips, agreed last month to pay up to $200 million in license fees to Broadcom to avoid the ITC ban.
Also on Wednesday, Qualcomm filed court documents accusing Broadcom of destroying evidence related to the case. A lawyer for Broadcom said the accusation related to drafts of an agreement it made with Verizon Wireless, a venture of Verizon Communications (VZ.N) and Vodafone Group Plc (VOD.L).
Last week, in yet another patent case, a federal judge ruled that Qualcomm had waived its rights to enforce two patents asserted against Broadcom because it had concealed documents and patents. Qualcomm said it would appeal.