How Outgunned Broadcom Won a Major Cellphone Battle
The price of a cellphone might soon get higher because of a strange-but-true lobbying battle that took place over the past few months.
Without fanfare this summer, Broadcom, a small California maker of computer chips, bested the better-known and much larger chipmaker Qualcomm -- as well as the entire wireless telephone industry. Qualcomm and its deep-pocketed allies spent millions of dollars in lobbying fees. Broadcom paid a fraction of that.
Yet Broadcom persuaded the International Trade Commission in June to protect its cellphone patent from infringement by Qualcomm. And last month the U.S. trade representative upheld the commission's decision.
As a result, cellphone makers are scrambling to avoid a ban on the importation of the latest generation of wireless phones -- the remedy prescribed by the commission. Some are also ponying up hundreds of millions of dollars in licensing fees to Broadcom to pay for its patented technology -- a move that could end up boosting the cost of phones.
How did the small fry prevail? Hard work by a tight band of energetic K Street types is one reason. Another is the odd route that the dispute took. In this instance, regulators and bureaucrats decided the outcome, and all the money in the world sometimes cannot buy a result from them.
In 2005, Broadcom complained that Qualcomm was using one of its patents without permission. In simple terms, the technology allowed cellphones to "sleep," or use less battery power, when not in use.
Qualcomm denied the allegation, so Broadcom asked the International Trade Commission, an obscure independent agency in Washington, to step in. One of the peculiarities of the commission -- and maybe a reason that it was chosen as the arbiter -- is that its commissioners cannot be lobbied by government outsiders.
They can, however, be importuned by members of Congress. So Qualcomm hired what seemed like everyone in town to try to obtain letters from lawmakers backing its position. Its lobbyists included Covington &; Burling, Lent Scrivner & Roth, Meece Group, DC Navigators, Loeffler Group, Quinn Gillespie & Associates, and Brownstein Hyatt & Farber.
That's a lot. In addition, CTIA-the Wireless Association and such major wireless companies as Verizon Wireless and AT&T put their muscle behind Qualcomm's cause.
Broadcom, in contrast, took a minimalist approach. It retained a law firm, Cleary Gottlieb Steen & Hamilton; former commission chairwoman, Paula Stern; and a single lobbying firm, Clark & Weinstock, whose small team was led by Sandra Stuart. Stuart is a veteran congressional staffer and was the top congressional lobbyist for the Pentagon during the Clinton administration.
Stuart's team worked day and night to prevent the cast of thousands against it from persuading every senior lawmaker on Capitol Hill to write a letter for Qualcomm. It did a fairly good job and even persuaded a few congressmen to take its side. "It was really tough going for a long time; we knew it was a major uphill battle," Stuart said. "We worried about the massive amount of force that was aligned against us, but we felt that the policy was on our side."
She also contends that any cellphone price hikes or import restrictions, if there even are any, will be minor.