Qualcomm Inc (QCOM)

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Qualcomm Slumps After Federal Court Rules in Favor of FTC in Antitrust Dispute
By: TheStreet | May 22, 2019

Qualcomm shares were indicated sharply lower Wednesday after a federal judge has ruled in favor of the U.S. Federal Trade Commission in a long-running antitrust dispute over patents and licensing.

Qualcomm Inc. (QCOM - Get Report) shares were indicated sharply lower Wednesday after a federal judge has ruled in favor of the U.S. Federal Trade Commission in a long-running antitrust dispute over patents and licensing.

Judge Lucy Koh of the United States District Court for the Northern District of California supported the FTC's view that Qualcomm abused its market dominance in the market for semiconductors that connect modems and smartphones, where licences earn the San Diego-based company around $5 billion a year. Judge Koh, who presided over an 11-day trial that ended in late January, ruled that Qualcomm can't based the supply of modem chips based on a customer's patent license status and must re-negotiate those terms in good faith.

"Qualcomm's licensing practices have strangled competition in the CDMA and premium LTE modem chip markets for years, and harmed rivals, OEMs, and end consumers in the process," Judge Koh wrote in the ruling, adding they are an "unreasonable restraint of trade under the Sherman Act."

Qualcomm shares were marked 12.5% lower in pre-market trading Wednesday following the ruling to indicate an opening bell price of $68.10 each, a move that would still leave the stock with a ear-to-date gain of around 20%.

The FTC had accused Qualcomm of violating antitrust law through a host of actions, including refusing to sell its modems to OEMs that refused to agree to its terms for licensing standards-essential patents (SEPs) and providing Apple Inc. ( AAPL - Get Report) with billions of dollars worth of royalty rebates in exchange for using its modems.
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The Commission also alleged that Qualcomm refused to license its SEPs to rival modem makers, who would then be able to pass on those licensing rights to OEMs using their modems.

Apple shares were marked 1% lower in pre-market trading following the ruling, suggesting an opening bell price of $184.71 each.

Last month, settled a two-year legal battle over royalties owed on the sale of iPhones and other devices featuring Qualcomm's intellectual property. The deal features a six-year patent license, with a two-year option to extend. It calls for Apple to make a one-time payment to Qualcomm of undisclosed size, as well as pay per-device royalties of unknown size going forward.

Qualcomm said on May 2 that Apple's back-dated royalty payments linked to the patent dispute settlement would give it a one-time benefit of between $4.5 billion and $4.7 billion. Qualcomm had earlier estimated the settlement would boost earnings per share by around $2 per share.

"We believe this settlement is a win for both companies and we are pleased with the result and pleased to have it behind us," CEO Steve Mollenkopf told investors on a conference call. "[It] includes two long-term agreements with Apple: a global patent license agreement and a multi-year chipset supply agreement."

"The term of the global patent license agreement is for six years with an option for Apple to extend for an additional two years," he said. "This represents a significant milestone, as it is Qualcomm's first patent license agreement directly with Apple. In addition, we believe our resolution with Apple enhances our position with respect to resolving our ongoing licensing issues with Huawei."

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