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FTC Discards Antitrust Legal Battle Against Qualcomm (QCOM)
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In a major relief, the U.S. Federal Trade Commission ("FTC") has decided not to pursue the review of the antitrust ruling against Qualcomm Incorporated (QCOM - Free Report) in the Supreme Court. With this, the four-year litigation process by the FTC against the chipmaker comes to an end.
Trial Background
Notably, Qualcomm secured a landmark judgment in August 2020 when the U.S. Ninth Circuit Court of Appeals reversed a previous ruling by federal judge Lucy Koh. The favorable decision validated its patent licensing business and reinforced the fairness of the competitive marketplace.
Overseeing the FTC’s litigation against Qualcomm, Lucy Koh had observed in May 2019 that the chip manufacturer had violated anti-trust regulations through monopolistic trade practices. FTC alleged that the company used anti-competitive policies to drive sales of its smartphone chips and reportedly followed “no license, no chips” trade policy, under which chips were only sold to those manufacturers that agreed to inflated patent licensing terms. In order to encourage fair competition, the ruling ordered Qualcomm to renegotiate licensing contracts with customers to ensure that both buyers and other chipmakers are not forced to pay exorbitant licensing fees on its patents. It also directed the company to end any exclusive agreement with customers, which prevented other chip makers from making a production bid.
Qualcomm Gained Edge in Appeals Court
Refuting all the charges, Qualcomm reasoned that its licensing business was started decades ago before it began selling chips. The company pointed out that if the decision is put into force, it would have to rework all its patent deals and scramble its business, which would be virtually impossible to unwind if the decision is later overturned on appeal. The trial seemed to invoke mixed responses from within the government as the Department of Justice — the other primary antitrust regulator in the country — disagreed with FTC's legal theory and viewed the decision as anti-consumer. The Pentagon and the Department of Energy also observed that the enforceability of the decision would harm national security interests.
Considering all these views, the appeals court unanimously gave the verdict that Qualcomm has not violated the antitrust laws and had not resorted to any anti-competitive trade practices. The judgment also opined that its business model was rather “chip-supplier neutral”, paving the way for the raft of new agreements, which were already in place, to continue without any legal hassles.
Change of Hearts for FTC
Unsatisfied with the verdict, the FTC decided to consider its legal options and requested the appeals court to reconsider its decision. The FTC was seeking an "en banc" hearing before an 11-judge panel as it aims to build a case against a likely ‘legal error’ by the three-judge panel of the appeals court that had issued the judgement.
However, FTC has now decided to shun the case as it reportedly faced “significant headwinds” in trying to overturn the appeals court verdict.
The favorable turn of events has been a shot in the arm for Qualcomm, which is facing a tough time meeting the high demand for chips widely used in smartphones and electronic gadgets. With Android phone users shunning Huawei models owing to U.S. sanctions, demand for Qualcomm chips has increased manifold. The chip manufacturer is reportedly finding it difficult to cater to this surging demand due to a shortage of certain subcomponents within its chips.
Aviat delivered a positive earnings surprise of 61.7%, on average, in the trailing four quarters.
Ubiquiti has a long-term earnings growth expectation of 32.9%. It delivered a positive earnings surprise of 37.1%, on average, in the trailing four quarters.
Clearfield delivered a positive earnings surprise of 62.6%, on average, in the trailing four quarters.
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FTC Discards Antitrust Legal Battle Against Qualcomm (QCOM)
In a major relief, the U.S. Federal Trade Commission ("FTC") has decided not to pursue the review of the antitrust ruling against Qualcomm Incorporated (QCOM - Free Report) in the Supreme Court. With this, the four-year litigation process by the FTC against the chipmaker comes to an end.
Trial Background
Notably, Qualcomm secured a landmark judgment in August 2020 when the U.S. Ninth Circuit Court of Appeals reversed a previous ruling by federal judge Lucy Koh. The favorable decision validated its patent licensing business and reinforced the fairness of the competitive marketplace.
Overseeing the FTC’s litigation against Qualcomm, Lucy Koh had observed in May 2019 that the chip manufacturer had violated anti-trust regulations through monopolistic trade practices. FTC alleged that the company used anti-competitive policies to drive sales of its smartphone chips and reportedly followed “no license, no chips” trade policy, under which chips were only sold to those manufacturers that agreed to inflated patent licensing terms. In order to encourage fair competition, the ruling ordered Qualcomm to renegotiate licensing contracts with customers to ensure that both buyers and other chipmakers are not forced to pay exorbitant licensing fees on its patents. It also directed the company to end any exclusive agreement with customers, which prevented other chip makers from making a production bid.
Qualcomm Gained Edge in Appeals Court
Refuting all the charges, Qualcomm reasoned that its licensing business was started decades ago before it began selling chips. The company pointed out that if the decision is put into force, it would have to rework all its patent deals and scramble its business, which would be virtually impossible to unwind if the decision is later overturned on appeal. The trial seemed to invoke mixed responses from within the government as the Department of Justice — the other primary antitrust regulator in the country — disagreed with FTC's legal theory and viewed the decision as anti-consumer. The Pentagon and the Department of Energy also observed that the enforceability of the decision would harm national security interests.
Considering all these views, the appeals court unanimously gave the verdict that Qualcomm has not violated the antitrust laws and had not resorted to any anti-competitive trade practices. The judgment also opined that its business model was rather “chip-supplier neutral”, paving the way for the raft of new agreements, which were already in place, to continue without any legal hassles.
Change of Hearts for FTC
Unsatisfied with the verdict, the FTC decided to consider its legal options and requested the appeals court to reconsider its decision. The FTC was seeking an "en banc" hearing before an 11-judge panel as it aims to build a case against a likely ‘legal error’ by the three-judge panel of the appeals court that had issued the judgement.
However, FTC has now decided to shun the case as it reportedly faced “significant headwinds” in trying to overturn the appeals court verdict.
The favorable turn of events has been a shot in the arm for Qualcomm, which is facing a tough time meeting the high demand for chips widely used in smartphones and electronic gadgets. With Android phone users shunning Huawei models owing to U.S. sanctions, demand for Qualcomm chips has increased manifold. The chip manufacturer is reportedly finding it difficult to cater to this surging demand due to a shortage of certain subcomponents within its chips.
Qualcomm currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry are Aviat Networks, Inc. (AVNW - Free Report) and Ubiquiti Inc. (UI - Free Report) , both sporting a Zacks Rank #1 (Strong Buy) and Clearfield, Inc. (CLFD - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Aviat delivered a positive earnings surprise of 61.7%, on average, in the trailing four quarters.
Ubiquiti has a long-term earnings growth expectation of 32.9%. It delivered a positive earnings surprise of 37.1%, on average, in the trailing four quarters.
Clearfield delivered a positive earnings surprise of 62.6%, on average, in the trailing four quarters.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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