Qualcomm Falls, Apple Rises After Latest Fight Ends in a Draw

(Bloomberg) -- Qualcomm Inc. fell and Apple Inc. rose Wednesday as whipsawed investors tried to interpret conflicting decisions in the long-running dispute between the companies over patent royalties.

Qualcomm was down as much as 2.9 percent in New York trading, the day after shares rose on a preliminary victory in one of two cases at the U.S. International Trade Commission in Washington. Apple was up more than 1 percent after it escaped an import ban on the second of those cases.

The mixed rulings “mean that the path to ultimate resolution between Qualcomm and Apple is probably not getting any smoother,” James Faucette, an analyst with Morgan Stanley, said in a note to clients. He described them as “lurching towards a reconciliation.”

The two trade cases were among dozens that span the globe with much of the focus on the ones pending in the U.S., Germany and China. While Qualcomm had been hoping for a clear victory that would give it leverage in technology-licensing negotiations, analysts said the news was less clear.

“It’s going to play out over these small bumps in the road, these small roller coaster rides, country-by-country, unfortunately,” Gene Munster, a managing partner of venture capital firm Loup Ventures, said in an interview on Bloomberg Television.

The company lawyers leading the legal battles -- Qualcomm’s General Counsel Don Rosenberg and Apple’s head of litigation Noreen Krall -- are both veterans of these types of fights.

Qualcomm has been battling regulators around the world over its business model, and Krall spearheaded Apple’s strategy in the biggest patent battle of the modern technology world, its seven-year fight with Samsung Electronics Co.

Both companies are known for being aggressive in litigation, not missing any legal argument and having deep pockets to pay lawyers, said Doug Cawley, a patent lawyer with McKool Smith who’s represented clients going up against each of them.

“They’ll continue to litigate until something happens in the courtroom which seems to foreshadow a result that one side or another can’t tolerate,” Cawley said.

Investors on Tuesday were buoyed by a mid-day decision that an ITC judge had found that Apple had infringed a Qualcomm power-saving patent and said she would recommend an import ban on certain iPhone models with Intel Corp. modem chips.

The administrative law judge is not the final say-so, however, as Qualcomm found out later in the day. A different judge had found that Apple infringed a separate battery-saving patent, only to have the full commission announce after Tuesday’s market close that it had invalidated the patent in that case.

Qualcomm said it would ask the commission to reconsider its decision, though such requests are rarely granted.

Apple had argued that, even if a patent violation is found at the trade agency, it was not in the nation’s best interest to block phones with Intel modems. Intel, which Apple turned to after its falling out over royalties with Qualcomm, is the only other U.S.-based maker of modem chips that will be critical in the next generation of telecommunications, Apple argued.

Trade groups that support Apple’s position and were watching the case closely said the question over how to protect U.S. supremacy in fifth-generation communications will be argued anew in the case still pending at the agency. The judge in the case that was decided by the commission had recommended there be no import ban.

“A competitive market for broadband chipsets is crucial to a diverse and thriving mobile ecosystem,” ACT/The App Association said in a statement, citing “the impacts on national security.”

Qualcomm, which leads the field ahead of China’s Huawei Technologies Co., said it needs to be fairly compensated for its research to keep its lead.

“The innovations we contribute to the iPhone extend well beyond a single component,” Rosenberg said in a statement. The judge’s recommendation, “along with recent infringement rulings in other U.S. and foreign courts, affirm the value of our technologies.”

Apple said Qualcomm is using the cases “to distract from having to answer for the real issues, their monopolistic business practices.”

‘Stifling Innovation’

“They are being investigated by governments around the world for their behavior and we look forward to detailing the many ways they’re harming consumers and stifling innovation when we present our case in San Diego next month,” Apple said.

In that case, to be heard in San Diego, Apple and its contract manufacturers say that Qualcomm violates its pledge to license patents on standardized technology, while Qualcomm accuses them of breaching contractual obligations for pay for use of the inventions.

Meanwhile, they also are awaiting a decision from a federal judge in San Francisco, who is considering a U.S. Federal Trade Commission complaint that accuses Qualcomm of misusing its patents to extract unfairly high royalties.

While each side is spending what’s likely in the hundreds of millions in legal fees, Qualcomm is losing billions in royalty fees from Apple’s contractors.

Even if Qualcomm only gets half of what it wants, it would amount to about $1 billion in annual revenue, said Matthew Ramsey, an analyst with Cowen. He said he expects “further posturing and possible settlement” before the April trial in San Diego.

Apple is likely to wait until there is a greater demand for 5G phones, Morgan Stanley’s Faucette said.

“Apple may be willing to bide its time, leaving those that are looking for full
resolution during 2019 potentially disappointed,” he said.

©2019 Bloomberg L.P.