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Qualcomm Patent Violation by Apple to be Investigated by ITC

Zacks Equity Research

The United States International Trade Commission (ITC) has decided to investigate a complaint filed by chipset manufacturer, Qualcomm Inc. QCOM against tech giant Apple Inc. AAPL for infringing six of its patents covering various aspects of mobile phone technology, this July. ITC had mentioned about establishing a deadline for finalizing its probe within the next 45 days.

As part of this lawsuit, Qualcomm had also requested ITC to investigate Apple's infringing imports and issue a Limited Exclusion Order (LEO) to ban importation of iPhones and other products linked with the patent in the U.S. The Company is seeking the LEO against iPhones that use cellular baseband processors other than those supplied by Qualcomm's affiliates. Additionally, the company is seeking a Cease and Desist Order barring further sales, marketing, advertising, demonstration, warehousing of inventory for distribution and use of imported products in the U.S.

Qualcomm boasts that each of its six patents are vital to iPhone functions. These patents provide smartphones with high performance and extended battery life.  While these technologies are central to iPhone’s performance, Apple continues to use Qualcomm's technology without payments.

In addition to the ITC complaint, Qualcomm also filed another complaint against Apple in the U.S. District Court for the Southern District of California demanding damages and injunctive relief.

The Story So Far

The companies have been battling over licensing royalty payments since Jan 2017. Apple had slapped a $1 billion lawsuit, accusing Qualcomm of overcharging for chips and refusing to pay $1 billion in promised rebates.

This suit was counter attacked by Qualcomm in Apr 2017. The company clearly mentioned the value of its invented technologies, their contribution and share in the industry through its licensing program. The filing also detailed Apple’s illegal and improper handling of agreements and negotiations with device manufacturers, misleading regulators to attack Qualcomm around the world and not utilizing the full performance of Qualcomm's modem chips in its iPhone7.

We witnessed Apple reverting with some strong solid backups. Recently, the company has garnered the support of big players from Silicon Valley and suppliers in its nasty legal spat with Qualcomm. Per media reports, the Computer and Communications Industry Association (CCIA) – boasting names like Alphabet Inc. GOOGL, Amazon.com Inc. AMZN, Facebook Inc. (FB), Microsoft Corp., Samsung Electronics, Netflix Inc, Intel Corp. INTC and many more – has filed a petition with the United States International Trade Commission (ITC) to snub Qualcomm's demand of seeking an injunction on iPhone import. Meanwhile, Apple’s suppliers have filed a lawsuit in the U.S. District Court for the Southern District of California, accusing Qualcomm of “violating” two sections of the Sherman Act, part of the U.S Antitrust Law. They have claimed that Qualcomm continues to extract additional licensing money over assembling of iPhones.

With so many twists and turns, we remain eager to see how this dispute actually pans out in the coming days. Moreover, Qualcomm is one such company which has been long grappling with legal disputes, regulatory proceedings and their related charges. We expect Qualcomm to resolve all such disputes and focus on its growth strategies.

Zacks Rank and Price Performance

Qualcomm currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

However, the price performance has been disappointing. Over the past three months, share price of Qualcomm lost 3.49%, as against the industry’s 0.78% gain.

We believe that tough competition in the mobile phone chipset market, stringent regulatory norms along with anti-competitive and unfair business practices charges resulted in the company’s below-par performance.

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