With the world's semiconductor market still far from recovery,

Texas Instruments

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and

Qualcomm

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are fighting a legal battle over a sector that is expected to triple in the next few years: chips for the next generation of ultra-capable cell phones.

So-called 3G or third-generation phones will allow users to access bandwidth-hungry services like streaming video and downloadable music faster and easier than today's 2G phones. At the heart of the cool new devices is a technology known as WCDMA, itself an advanced variant of CDMA, or code division multiple access.

Last year, the worldwide market for CDMA basestation chips was $700 million, and Qualcomm had more than 90% of it, said analyst Will Strauss of market researcher Forward Concepts. Within three or four years, that market (including the more advanced WCDMA chips) is likely to triple, predicts Strauss, who has followed the signal processing business for many years.

Now, Texas Instruments, via a joint venture with handset maker

Nokia

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and

STMicroelectronics

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, is selling CDMA chips. "Qualcomm is worried about losing share, of course, but also worried that the entry of such an aggressive, capable competitor will force prices down," said Strauss.

Qualcomm developed CDMA technology and holds the patents to it. In addition to TI, it has patent agreements on CDMA with handset maker

Samsung

and Taiwanese chipmaker

Via Technologies

, which has at least one customer in China, said Deutsche Bank analyst Brian Modoff.

The legal battle started in July when Qualcomm filed a suit accusing TI of breaching the confidentiality of a patent agreement the companies signed in 2000. The suit asks for unspecified damages, and more significantly, seeks to terminate the agreement itself. Without the agreement, TI could not produce the chips.

At the time, TI said, "Qualcomm has enjoyed many years of selling CDMA chips against little or no competition. TI intends to establish this market as a level playing field in which open competition prevails and consumers benefit."

On Tuesday, TI hit back again, this time by filing suit against Qualcomm, alleging that its rival was making improper deals with customers.

"We brought this action because we have received reports that Qualcomm is offering handset royalty discounts to handset manufacturers only if they purchase CDMA chipsets from Qualcomm," Texas Instruments said in a statement. "We are asking the Delaware court to enforce the terms of the agreement."

Although the long-term prospects for the CDMA chip market are strong, there are some indications of inventory buildup, a factor that can only add heat to the battle. Deutsche Bank's Modoff said, "Conservatively we estimate at least 5 million excess chips sitting in the channel unless the September quarter turns out to be extremely strong." Deutsche Bank has done banking for Qualcomm.

Qualcomm, meanwhile, has filed a separate action against

Maxim Integrated Products

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alleging that the chipmaker's integrated circuits for wireless handsets infringe on three Qualcomm patents covering radio signal technology for wireless telephones. And on Monday, Maxim revealed that Qualcomm has made a motion to extend the suit to three additional "transmission-related patents."

The parts made by Maxim are components of a CDMA phone that work with the CDMA chips manufactured by Qualcomm and TI. Maxim general counsel Chuck Rigg said his company is a recent entrant in the CDMA market "and I have to assume that Qualcomm is afraid of our competition." He said Maxim does not have (and does not need) a license from Qualcomm and has not infringed on any of its patents.