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Apple (AAPL) - Qualcomm Legal Battle Takes an Ugly Turn

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Apple Inc (AAPL - Free Report) and Qualcomm Inc’s (QCOM - Free Report) legal dispute over royalty payments just got nastier. Per Bloomberg, the company has accused Qualcomm of having an “illegal business model” that helps the company to earn more patent money and at the same time stifles innovation.

Apple has referred to the landmark ruling handed in the Impression Products Inc Vs. Lexmark International Inc case recently. In the case, reportedly, Supreme Court had ruled that companies (like Lexmark) can’t have any patent rights once they sell the product, thereby preventing such companies to earn more money for the second time during resale.

Per Reuters, Apple has said that Qualcomm’s licensing practices (making clients ink patent licensing agreements before buying chips) are questionable. This is because not only does Apple pay for the chips but the license agreement also enables Qualcomm to haul a small amount of the selling price of the iPhone in “exchange for supplying the modem chips that let phones connect to cellular data networks.”

Per the recent Lexmark ruling, Qualcomm is entitled to earn money just once – either for the license or for buying the chip, argues Apple. Apple has been reportedly quoted saying “This is precisely the kind of double dipping, extra-reward system that the court’s decision sought to eliminate.”

On the other hand, Qulacomm responded to Apple’s latest allegations by saying “Apple is trying to distract from the fact that it has made misleading statements about the comparative performance of its products, and threatened Qualcomm not to disclose the truth. It simply is untrue that Qualcomm is seeking to collect royalties for Apple innovations that have nothing to do with Qualcomm’s technology.”

The Apple-Qualcomm dispute started in January this year when Qualcomm was slapped with a $1 billion lawsuit related to licensing royalty payments by Apple. In the suit filed in the U.S. District Court for the Southern District of California, Apple accused Qualcomm of overcharging for chips and refusing to pay some $1 billion in promised rebates. Later on, Apple also asked its manufacturing partners Foxconn, Pegatron, Wistron and Compal Electronics to stop paying Qualcomm and agreed to indemnify them if Qualcomm took them to court.

In April, Qualcomm launched a counterattack on Apple by mentioning the value of its invented technologies, their contribution and share in the industry through its licensing program. The filing also elaborated on 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 iPhone 7.

We are unlikely to see an end to this legal dispute in the near term.

Zacks Rank & Stock Price Movement

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

In the last one year, shares of the company have registered growth of 51.8% compared with the Zacks categorized Computer Mini industry’s gain of 50.7%.

Stocks to Consider                                                           

Some better-ranked stocks in the broader tech space include TiVo Corp (TIVO - Free Report) and MercadoLibre (MELI - Free Report) . Both sport a Zacks Rank #1 (Strong Buy).

In the trailing four quarters, TiVo and MercadoLibre delivered average positive earnings surprises of 67.56% and 26.74%, respectively.

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