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Should Apple Worry as USITC Investigates Qualcomm Claims?

The legal dispute between Apple Inc AAPL and Qualcomm Incorporated QCOM is getting nastier by the day.

In June, per a filing with the U.S International Trade Commission (USITC), Qualcomm had asked to ban iPhone import from China, accusing Apple of violating six of its patents related to mobile technology. The chipmaker filed another lawsuit against Apple with the U.S. District Court for Southern California, seeking damages for patent violation.

Recent developments indicate that USITC is investigating Qualcomm’s claims. As quoted by Reuters, USITC has said that it will target a 45-day deadline to complete the investigation and give its decision at the earliest possible.

As expected, Qualcomm has welcomed this action. It was quoted saying “We look forward to the ITC’s expeditious investigation of Apple’s ongoing infringement of our intellectual property and the accelerated relief that the commission can provide.”

Qualcomm has been badly hit due to its conflict with Apple. Fiscal third-quarter 2017 revenues fell 11% year over year as a result of the dispute with Apple and its suppliers. This has resulted in loss of a chunk of licensing fees. Consequently, profits fell nearly 40%. Moreover, Qualcomm slashed its guidance for the current quarter due to the legal spat.

Legal Dispute Backdrop                                                                                                            

The Apple-Qualcomm dispute started in January this year when the latter was dragged to court by Apple in a $1 billion lawsuit related to licensing royalty payments. In the lawsuit, Apple accused Qualcomm of overcharging for chips and refusing to pay some $1 billion in rebates.

In Apr 2017, Qualcomm launched a counterattack on Apple. In a filing, the company 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 potential of its modem chips in iPhone 7. Apple has started using Intel chips for iPhone 7.

In Jun 2017, Apple fired a legal salvo at Qualcomm, accusing the chipmaker of having questionable business practices that help it get more patent money and suppress innovation at the same time.

Suppliers and Silicon Valley Back Apple

Last month, Apple suppliers – Compal, Hon Hai Precision, Pegatron and Wistron – also pitched in, filing a lawsuit against Qualcomm in the U.S. District Court for the Southern District of California. They have accused Qualcomm of “violating” two sections of the Sherman Act, part of the U.S Antitrust Law in the suit filed. This was in response to Qualcomm’s lawsuit filed in May this year, in which, the company had accused the four suppliers of holding its royalties/license fees on Apple’s insistence.

Also, Apple has garnered the support of Silicon Valley biggies in its fight against the chipmaker. In July, the Computer and Communications Industry Association (CCIA) – boasting names like Alphabet GOOGL, Amazon.com Inc, Facebook Inc FB, Microsoft Corp, Samsung Electronics, Netflix Inc, Intel Corp and many more –filed a petition with the United States International Trade Commission to snub Qualcomm's demand of seeking an injunction on iPhone import. 

Per CCIA “Qualcomm is already using its dominant position to pressure competitors and tax competing products. If the ITC were to grant this exclusion order, it would help Qualcomm use its monopoly power for further leverage against Apple, and allow them to drive up prices on consumer devices.”

Bach then, it had further added “The ITC has a choice whether to further reward anti-competitive behavior – or to reject this anti-free market, anti-consumer request." According CCIA, banning iPhone (which uses Intel’s chips) import will result in disruption of supply, which will adversely impact consumers.

With so many twists and turns, we remain eager to see how this dispute actually pans out in the coming days.

Zacks Rank and 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 past one year, shares of Apple have registered growth of 47.1% compared with the industry’s gain of 45.9%.

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