(Adds comment from Qualcomm, analyst and lawyer starting in the 11th paragraph. Also updates stock quote.)
By Roger Cheng
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Bitter wireless semiconductor rivals Qualcomm Inc. (QCOM) and Broadcom Corp. (BRCM) are at it again.
The latest volley comes in the form of a lawsuit filed by Broadcom on Tuesday in San Diego claiming Qualcomm employed illegal sales and licensing practices. Broadcom is seeking to have Qualcomm's patents and licenses thrown out, arguing they are unenforceable.
The suit represents another twist in companies' long-standing battle.
Broadcom, Irvine, Calif., claimed San Diego-based Qualcomm has double-dipped on its patents by charging a fee for the use of its technology and another fee for its use in combination with another product. It's a practice that is referred to as patent exhaustion.
The lawsuit "further asserts that these practices constitute patent misuse that has brought Qualcomm a financial windfall and brought harm to the industry and consumers," Broadcom said in a statement.
In addition to licensing its technology, Qualcomm also makes chips for phones using the same intellectual property. The company denies the claim applies to its business.
Qualcomm has never been challenged on this issue in court. James Faucette, an analyst at Pacific Crest Securities, said Nokia Corp. (NOK) briefly raised the issue, but dropped it before it went anywhere.
"I don't know how legitimate the claim is," Faucette said.
Broadcom is using as the basis of its suit a June ruling by the U.S. Supreme Court that went against LG Electronics Inc. (066570.SE) and in favor of Quanta Computer Inc. (2382.TW) in its royalties dispute with other computer manufacturers. The ruling limited the ability of companies to collect royalties after the first sale of a patented product.
Qualcomm doesn't believe the claims apply to its licensing practices, and will look closely at the filing before responding, said Don Rosenberg, general counsel for the company.
"Clearly, they are misstating the law of the Quanta case," Rosenberg said.
Qualcomm explicitly spells out limitations to the use of its patents, so that handset makers that ultimately use its chips have to be covered under a licensing agreement too, he said.
"We've got a limit built in," he said. "When we sell a chip, it doesn't prevent us from requiring component manufacturers or phone makers to have a license to our technology."
Many were unclear as to whether that precedent will work on Qualcomm. That includes Faucette, who said he had some doubts over how applicable the case is to Qualcomm's situation. The issue of exhaustion represents a new legal tactic for Broadcom.
Broadcom's complaint may be legitimate, but it's unlikely the company will be able to win in court, said David Wu, an analyst at Global Crown Capital who covers Broadcom. He doesn't believe the case will significantly affect either companies.
The latest suit is another chapter in the dramatic feud between the two. Last month, a federal appeals court affirmed a lower-court ruling that Qualcomm's third-generation chips infringed two Broadcom patents.
In addition to the legal sparring, the two have argued over licensing practices. At one point, Qualcomm was rebuked for failing to turn over email evidence.
Broadcom is a relative newcomer in the cellphone chipset market, but has been aggressive in defending a series of patents it had previously acquired. It accused Qualcomm of illegally using its technology in 2005.
Qualcomm, meanwhile, has a long legacy of pioneering wireless technology, but has more recently gotten into hot water with other players in the industry over how it licenses is technology. In July, it settled its litigation with Nokia.
Investors aren't paying too much heed. Qualcomm rose 8.1% to $42.30. Broadcom rose 5.4% to $15.46 in recent trading.
-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com
(Shirleen Dorman contributed to this report.)
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(END) Dow Jones Newswires
October 08, 2008 15:47 ET (19:47 GMT)