Qualcomm (NASDAQ:QCOM) continues to go for the jugular in its legal battle with Apple (NASDAQ:AAPL). Fresh off a win in Chinese courts, on Thursday, QCOM won an injunction that bans Apple from selling some iPhones — including the iPhone 7 and iPhone 8 — in Germany. And this iPhone sales ban is already biting. AAPL says it is appealing, but in the meantime will stop selling the affected models at its German Apple Stores.
Apple stock closed down 2.52% as the tech sector in general got hit, and investors reacted to Qualcomm’s win.
QCOM Wins Another iPhone Sales Ban
Last week, Qualcomm won an injunction in a Chinese court that would prevent the import and sales of iPhone models up to and including the iPhone X. That iPhone sales ban was a surprise win for QCOM, but Apple stock quickly recovered from the initial shock of the ruling. Apple continued to sell the affected iPhones, claiming the patent violations in question would be addressed through a software update.
On Thursday, Qualcomm won another injunction against iPhone sales, this time in Germany. Even though it is appealing the ruling, AAPL immediately began pulling the iPhone 7 and iPhone 8 from Apple Store shelves in Germany. The iPhone X is also affected, but Apple no longer directly sells that model in the country. The iPhone XS, iPhone XS Max and iPhone XR remain available at Apple Stores and at this point, all iPhone models are still being sold through third-party retailers.
Qualcomm announced that besides winning an iPhone sales ban that sticks this time, it has been awarded monetary damages, with the amount Apple must pay yet to be determined.
The difference in Germany? The patents in question are hardware-related, making it tough for Apple to come up with a quick fix. According to CNBC, chips supplied by Intel (NASDAQ:INTC) and Qorvo (NASDAQ:QRVO) violate QCOM patents related to saving battery power, while a phone is sending and receiving wireless signals. This is a feature known as “envelope tracking.”
The patents involved in the China legal win were focused on software features and AAPL says a quick update to iOS took care of it, eliminating its requirement to stop selling the iPhones (although that outcome is being disputed by QCOM).
Ironically, while the Intel and Qorvo chips were implicated as being in violation of QCOM patents, it was Apple stock that took the hit. INTC and QRVO were up and down on Thursday, but both closed just about where they started the day.
Qualcomm’s Legal Strategy Hits Apple Where It Hurts
As the legal battle between Apple and Qualcomm continues, QCOM has adopted a new strategy. Challenges filed with U.S. International Trade Commission and U.S. courts over patent issues and trade secrets related to the Intel modems that replaced QCOM versions in Apple iPhones continue. But they take time.
In the meantime, QCOM appears to have adopted a tactic of going after Apple in different countries, attacking its patent portfolio with the aim of winning a local iPhone sales ban. Each time it files a suit, Apple’s legal team has to spring into action, QCOM gets headlines and consumers see a negative about the iPhone. With a win, QCOM has momentum to pursue the same strategy in another country. With the iPhone dominating AAPL’s revenue, anything that threatens to impact that revenue stream is cause for worry and takes a toll on Apple stock.
The endgame is putting enough pressure on Apple that it relents, drops its own lawsuits against QCOM, pays the royalties it has withheld and goes back to paying Qualcomm going forward. This battle is far from over, but with the latest court win and subsequent iPhone sales ban in Germany, Qualcomm seems one step closer to achieving its goal.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.