Qualcomm Incorporated (QCOM - Free Report) recently received two symmetrically opposite court verdicts – one from a U.S. federal judge and other from the Japan Fair Trade Commission. While the domestic verdict was against the company, the international ruling was in favor, evoking mixed response from management.
The preliminary ruling by Judge Gonzalo Curiel of the U.S. District Court for the Southern District of California relates to non-payment of patent royalty rebate to the tune of $1 billion to Apple Inc. (AAPL - Free Report) . In its lawsuit filed two years ago, Apple alleged that Qualcomm violated its payment obligations per the 2013 Business Cooperation and Patent Agreement. The contract mandated Qualcomm to pay rebate on the iPhone patent payments if Apple abstained from attacking its trade policies in court or with regulators.
In reply, Qualcomm accused Apple of violating the agreement by encouraging other smartphone manufacturers to complain against it and fanning false propaganda to regulators relating to its trade policies. This allegedly compelled the Korean Fair Trade Commission to investigate the antitrust charges, due to which Qualcomm refused to make any further rebate payments. Eventually, the billions of dollars that Qualcomm received from contract factories that manufactured Apple’s iPhone for using its patented technology also dried up as the two were involved in a bitter patent battle.
In view of these circumstances, Judge Curiel observed that Qualcomm was at fault and was obligated to pay $1 billion in rebate payments to Apple. The decision, however, is not final until the trial proceedings are over, starting from next month. Moreover, as Qualcomm reportedly owed more than $1 billion from contract factories that manufactured iPhones, the purported payments were likely to be offset.
Meanwhile, Qualcomm had something to cheer about when the Japan Fair Trade Commission revoked its own 2009 cease-and-desist order pertaining to its licensed products in the country. Although the Tokyo High Court had issued a stay in 2010 against the order, thorough investigations and nine-year evidentiary proceedings involving 37 separate hearings inferred that Qualcomm's cross-licensing provisions did not violate Japanese antimonopoly law.
This is reportedly the second such favorable verdict from antitrust regulators after the Taiwan Fair Trade Commission, and is likely to boost Qualcomm’s case against Apple. Moreover, that the cross-licensing program was deemed to be lawful by the regulators would strengthen its argument against the iPhone manufacturer.
The stock has declined 7.5% on average in the past year while the industry rallied 2%.
Qualcomm currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Harris Corporation (HRS - Free Report) and Motorola Solutions, Inc. (MSI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Harris has a long-term earnings growth expectation of 8%. It delivered average positive earnings surprise of 2.9% in the trailing four quarters, beating estimates in each.
Motorola has a long-term earnings growth expectation of 8%. It delivered average positive earnings surprise of 13.2% in the trailing four quarters, beating estimates on each occasion.
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