The Bush administration upheld an import ban Monday on cellphones that contain Qualcomm chips, further threatening the introduction of new handsets.
U.S. Trade Representative Susan Schwab said she was sticking to a long practice of declining to overrule the U.S. International Trade Commission unless conditions were "extraordinary." The executive branch has overruled the ITC only five times, most recently in 1987.
In June, the ITC banned imports of new, high-end phones that run on Qualcomm chips, raising doubts about the introduction of some models from carriers including Sprint Nextel and manufacturers like LG Electronics and Samsung Electronics.
The ITC ruling came in patent dispute between Qualcomm and rival chipmaker Broadcom. The commission found that Qualcomm infringed on a patent that protected Broadcom's technology to conserve battery power.
Schwab noted that industry players are working on alternative products to avoid the ban. She said a Department of Homeland Security review found insufficient justification for overturning the order on grounds that it would create problems for public safety agencies.
Qualcomm said it will ask the U.S. Court of Appeals for the Federal Circuit in Washington to reverse the ban and put it on hold while its appeal is considered. Chief Executive Officer Paul Jacobs said in a statement that he was disappointed but added Qualcomm will pursue "all legal and technical options available" to limit the impact on consumers.
The ban applies to the high-speed EV-DO and WCDMA network technologies, which allow users to more quickly surf the Internet and download music and video.
Qualcomm is using alternative software designed to escape the ban, but Broadcom may claim that it also infringes on its patent, Qualcomm attorney Alex Rogers said. A Broadcom attorney, David Rosmann, said he was unaware of Qualcomm's change and would reserve judgment until the company has a chance to review it.
Schwab acknowledged worries that the ban may slow the introduction of so-called third-generation, or 3G, mobile phones but said Broadcom's licensing deals with "two major wireless carriers" would soften the impact.
Verizon Wireless, whose phones run on Qualcomm chips, struck a deal with Broadcom last month to pay for each phone it sells that carry one of Qualcomm's patent-infringing chips, ducking the ban and depriving Qualcomm of a powerful ally in its legal fight. Neither the U.S. trade representative nor Broadcom would identify the second carrier to strike such a deal.
AT&T, with 63.7 million wireless customers nationwide, declined to say if it struck a deal with Broadcom to avert the ban. AT&T is less dependent on the technology affected by the ban than Verizon Wireless or Sprint Nextel, but a spokesman, Michael Coe, said Qualcomm's chips are still important.
"There are not a lot of options (for 3G phones) beyond the Qualcomm chips," Coe said. "We are taking steps to make sure we continue to have an adequate supply for our customers."
A spokeswoman for Sprint Nextel, Leigh Horner, said that the carrier had not struck a deal with Broadcom and is instead using Qualcomm's alternative fix. Sprint Nextel will also ask a federal appeals court to halt the ban.
The decision, announced after markets closed, was widely anticipated by investors and analysts. Qualcomm shares rose $1.01, or 2.5%, to $41.78 in regular trading, then surrendered 28 cents after hours. Broadcom's shares climbed 48 cents, or 1.5%, to close at $33.44, then added 31 cents after hours.
Qualcomm, based in San Diego, is the world's second-largest chip supplier for mobile phones after Texas Instruments, but earns much of its money from licensing fees on its patented technology. Broadcom, based in Irvine, is a newcomer to the cellphone business but has scored several legal victories against Qualcomm this year.
The impasse resembles a long-running patent dispute involving the maker of the BlackBerry e-mail device that ended in March 2006 when manufacturer Research In Motion agreed to pay a $612.5 million settlement to NTP. Uncertainty about the outcome had left BlackBerry customers wondering whether they would experiences brief outages or even a shutdown.
Qualcomm has warned of far-reaching harm to consumers who may be unable to buy the newest phones. It commissioned a study that estimated the cost to consumers and the wireless industry at between $4.3 billion and $21.1 billion, depending on the length of the ban. The study was done before Verizon Wireless ducked the ban.
Broadcom officials say the ban's impact would be limited.