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Chip Giants Intel, Broadcom Trade Barbs Over Patents

Cable chip-set market leader Broadcom Corp. swiped back at PC-chip behemoth Intel Corp. last week, calling Intel's patent-infringement lawsuit "nonsense."

Intel filed a complaint against Broadcom with the U.S. District Court in Delaware Aug. 30. It claimed Broadcom has infringed upon "nearly every aspect of [Intel's] business."

The bad blood started when Intel filed a complaint in California Superior Court March 10 against Broadcom. That complaint sought an injunction designed to prevent three Intel employees from joining Broadcom and potentially divulging Intel trade secrets.

That case "is in discovery," and no trial has been set, Intel spokesman Chuck Mulloy acknowledged.

Intel has also charged San Jose, Calif.-based Altima Communications Inc.-a maker of integrated circuits for telecommunications networks-with patent infringement. Broadcom cut a deal to acquire Altima last month for roughly $533 million in Broadcom stock.

The latest Intel complaint sought an injunction to prevent further alleged patent infringement, plus unspecified monetary damages from Broadcom. The suit centered on five Intel patents: one related to chip packaging, another to networking and three related to video compression.

Broadcom president and CEO Henry T. Nicholas III fired back last week in a prepared statement, calling Intel's allegations that Broadcom infringed on Intel's patents in order to compete "nonsense."

"Intel's allegations are an insult to more than 1,000 Broadcom engineers who work day and night to develop these technologies," he added.

Nicholas-who called Intel "a great company, a worthy competitor"-said the suit was an example of Intel's penchant "to rely on litigation as a standard business tactic to slow not only Broadcom, but also any competitor that poses a serious threat to Intel in the marketplace."

Responding to Intel's complaint that Broadcom was stealing trade secrets, Nicholas said Broadcom is "convinced that Intel's true motive in the earlier case was and is to deter its own employees from exercising their right to seek better job opportunities at Broadcom, and not the protection of Intel intellectual property."

The three individuals named in the suit remain on the job at Broadcom today, he added.

When asked why Intel waited until now to levy patent-infringement charges against Broadcom-which was founded in 1991-Mulloy said

Intel didn't initiate an investigation to determine whether or not Broadcom was infringing on Intel patents until after Intel filed its initial trade-secrets lawsuit against Broadcom in March.

According to the document, Intel said its efforts "to persuade Broadcom to respect Intel's intellectual property have been fruitless, leaving Intel little choice but to take direct legal action in court."

The company also claimed that Broadcom's filching of Intel technology "appears to be part of a carefully crafted plan to build Broadcom's business."

That business has netted Broadcom a dominant share of the cable-modem and digital-set-top-box silicon sectors, a market cap of more than $50 billion and-through acquisitions and internal growth-access to burgeoning markets such as wireline and wireless high-speed networking communications, data transmission and home networking.

To get there, Broadcom has been gobbling up companies to flesh out its technology port-folio. Some of Broadcom's recent acquisitions include "Bluetooth" developer Innovent Systems Inc., Silicon Spice Inc., Pivotal Technologies Corp., Stellar Semiconductor Inc., Digital Furnace Corp. and voice-over-Internet-protocol-software firm HotHaus Technologies Inc.

Nicholas said Broadcom holds 22 "allowed" U.S. patents, and has about 350 more pending that cover "the many cutting-edge technologies we have developed and are taking to market."

"We're confident in the soundness of our business practices, and we will defend vigorously against this complaint," Broadcom senior director of corporate communications Bill Blanning said.

One analyst suggested that Intel's suit was designed to snuff out or at least slow Broadcom's competitive fire.

"If you can't beat 'em, sue 'em," Banc of America Securities LLC analyst Alex Gauna theorized in a research note supplied to Multichannel News that referred to the case.

Despite Intel's legal action, the firm reiterated a "strong buy" and set a $300 target on Broadcom shares.

"Although we are not in a position to directly assess the merits of the suit, this second legal action against Broadcom strikes us as the further desperate flailing of an Intel drowning in the broadband sea," Gauna wrote. "We believe Broadcom's litigation team is in an excellent position to thump Intel in court as badly as its products have in the market."

But another set of analysts, at U.S. Bancorp Piper Jaffray Inc., cut Broadcom's stock rating to "buy" from "strong buy."

Meanwhile, one industry analyst surmised that the squabble between the two Silicon Valley companies "has less to do with the actual lawsuit and more to do with an executive-level ego collision between Henry Nicholas and Intel's upper ranks."