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Qualcomm Alleges Apple of Patent Violation, Fuels Legal War

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Qualcomm Inc. (QCOM - Free Report) , the largest mobile chipset manufacturer, recently filed a complaint with the United States International Trade Commission (ITC) against tech giant Apple Inc. (AAPL - Free Report) for infringing six of its patents covering various aspects of mobile phone technology.

Qualcomm has requested ITC to investigate Apple's infringing imports and issue a Limited Exclusion Order (LEO). The order will 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 technology to smartphones providing high performance with extended battery life.  While these technologies are central to iPhone’s performance, Apple continues to use Qualcomm's technology without payments.

Qualcomm expects the ITC investigation to start this August. 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 companies have been battling over licensing royalty payments since Jan 2017, when Apple had slapped a $1 billion lawsuit on Qualcomm, accusing the latter of overcharging for chips and refusing to pay $1 billion in promised rebates. In Apr 2017, Qualcomm counter attacked Apple by updating one of its lawsuits providing evidences about intrusions with its existing arrangements with contract manufacturing firms. Apple has been withholding fees until the courts determine the amount, a process that could take several years.

Intel Corp. (INTC) and Media Tek are the closest competitors of Qualcomm in this field. In addition to iOS, Qualcomm chipsets are vastly used in Alphabet Inc.’s (GOOGL) Google developed Android software and Microsoft Corp. (MSFT) developed Windows operating system.

We expect Qualcomm to resolve all such disputes and focus on its growth strategies. Moreover, aggressive competition in the mobile phone chipset market is a concern for the company.

Latest Patent Licensing Disputes

In Jun 2017, Comcast Corp. (CMCSA - Free Report) lost a patent licensing dispute against TiVo Corporation , wherein Comcast and its vendor partners were charged for violating six patents related to digital video recording and interactive program guides through Comcast’s X1 technology. The complaint was filed by Rovi Corp. against the cable MSO to the International Trade Commission (ITC) in Apr 2016. Rovi filed the suit before it purchased TiVo for $1.1 billion and merged as a new company, while carrying the latter’s brand. 

Qualcomm settled a licensing dispute with BlackBerry Limited by paying $940 million, on or before May 31, 2017. This is in relation to the over-payment by BlackBerry to Qualcomm in royalty payments from 2010 to 2015 under terms of a licensing deal.

Price Performance

Over the past three months, Qualcomm lost 3.06%, as against the Zacks categorized Wireless Equipment industry’s 3.38% gain.

We believe 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.

However, we look forward to Qualcomm’s performance in the to-be reported quarter. Qualcomm’s Snapdragon processor is known for its Internet of Things (IoT) applications. Patent license deals entailing 3G and 4G networks, tie-up with AT&T and Ericsson to test 5G New Radio specification and the launch of China’s first end-to-end data call also bode well for Qualcomm. Moreover, the company is foraying into areas like automotive, networking and mobile computing. 

Qualcomm currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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