Microchip patent litigation suits continue to swirl around major semiconductor chip makers Qualcomm and Marvell over advanced patents for the latest generation of electronic devices.
Qualcomm may face a penalty of over $1 billion after China's National Development and Reform Commission (NDRC) judged that the US chip maker has violated anti-monopoly laws. The NDRC is checking Qualcomm's sales in China to confirm if allegations are valid that the company charged excessively high fees and conducted discriminatory patent licensing.
In 2013, Qualcomm's high-end microchips and licensing fees for reducing power consumption and improving functionality in advanced mobile devices generated $24.3 billion in revenue; nearly 50 percent was attained in China. License fees accounted for 30 percent of Qualcomm's total income, but its related profits represented 70 percent of this amount, which is more than twice that of its microchip business. Although Qualcomm's revenue mostly comes from microchips used in high-end mobile devices, most of its profits come from patent authorization income, according to a report by Reuters' Chinese-language service.
Qualcomm typically charges 5 percent for its patent authorization, which is significantly higher than the profit margin of most cellphone makers regarding similar activities. The allegations are focused on the acquisition that Qualcomm charged much lower license fees to Samsung and Nokia than to Chinese cellphone manufacturers. If this accusation stands, Qualcomm may face a fine of more than $1 billion, according to Reuters.
Qualcomm estimates that fourth-quarter sales ending September are projected to be approximately $7 billion, which would be lower than Wall Street's average forecast of $7.15 billion. Qualcomm has attributed the lower sales forecast to the litigation issues associated with collecting patent authorization fees from local equipment manufacturers in China. Qualcomm has a dominant market share for microchips used in high-end smartphones compatible with China's 4G standards, and nearly half of Qualcomm's revenues of license fees and microchips are derived from China; thus, this market is super-critical for their profitability.
In other microelectronics litigation across the industry, fabless semiconductor firm Marvell has initiated an appeal of the record-breaking $1.5 billion judgment in its ongoing patent dispute with Carnegie Mellon University (CMU). Marvell has been struggling with patent litigation with CMU ever since the university initiated its suit in 2009.
The patent lawsuit is affiliated with two US patents – 6,201,839 and 6,438,180 which cover technologies used to improve the accuracy of data read from hard disks. In this patent law suit, CMU alleged that Marvell shipped 2.3 billion chips that incorporated those inventions between 2003 and 2012, when US District Judge Nora Barry Fischer decided on a positive ruling for CMU in this case, leading to a $1.17 billion infringement penalty, which was increased another $370 million in punitive damages in April 2014.
Marvell’s 75 page appeal reiterates its earlier claims that CMU's patents are invalid and that the judgment against it is the result of a series of legal errors by the district court.
The chip maker states that its silicon chip technology could not have infringed CMU's patents, because the disputed patents deal with theoretical algorithms that are incapable of commercial implementation in a power-efficient semiconductor chip. Furthermore, Marvell infers that the judgment is based on its total global chip sales, when the majority of those parts were manufactured, sold, and used exclusively outside the US and outside the jurisdiction of US patent law.
What’s more, Marvell states that the court should reduce the award by a minimum of $620 million due to the fact that CMU waited six years before notifying Marvell of possible infringement. Thus, the company believes it had inclinations that CMU's claims were invalid so it hopes additional damages for willful infringement will be eliminated. CMU has not filed a formal response to Marvell's claims in the appeals court, but this matter is expected to take more turns in the legal process before it is fully resolved.
Other high-tech companies will be using these cases as guidance moving forward to prevent similar lawsuits, as the price of protecting intellectual property retains its prominence with respect to competitiveness and profitability.
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