Back when I was in grade school, you didn't worry too much about the class bully as long as he was alone. But when he had his gang with him, you started to keep a low profile.
A few months ago, I wrote about a series of lawsuits and complaints that communications chip designer Broadcom (NASDAQ:BRCM) had levied against Qualcomm (NASDAQ:QCOM). I also commented that the escalating legal battle won't get really interesting until Broadcom rallies more companies to its cause.
Well, things just got more interesting. The latest salvo in this brewing battle is a series of complaints sent to the European Commission from six companies - Broadcom, Ericsson (NASDAQ:ERICY), NEC (NASDAQ:NIPNY), Nokia (NYSE:NOK), Panasonic Mobile Communications, and Texas Instruments (NYSE:TXN). The complaints haven't deviated much from the original Broadcom complaints and boil down to two nefarious practices Qualcomm allegedly performs:
1) Qualcomm charges excessive license fees that are out of proportion to its contribution to certain mobile phone technology standards.
2) Qualcomm is either illegally refusing to license its technology patents or is only licensing its patents to manufacturers who use Qualcomm chipsets. Either way, Qualcomm is attempting to keep competition out of the market for advanced mobile phone chips.
The main claim from these companies is that Qualcomm's practices unreasonably inflate the prices of the latest, advanced mobile phones and keep competition out of the market. The end result, they argue, is higher prices to consumers and an unfair marketplace. Broadcom has already levied these complaints to federal agencies in the U.S., so now it's backing them up with more of the same in Europe.
While the news obviously spooked a lot of investors -- Qualcomm's stock took a roughly 5% hit on the news -- there's actually little material impact in the near term. As always, litigation takes years to wend its way through the court system. Qualcomm is unlikely to settle with any of the companies, as the company has consistently stated that the complaints have no merit. Incidentally, most of the companies already agreed to obtain licenses from Qualcomm prior to filing these complaints.
Unfortunately, no one can determine the course of the legal proceedings, especially when it gets raised to a political level. Two things are certain, though. Legal costs will increase, and the battle will be a distraction for the company and investors. But Qualcomm has spent much of its corporate life standing up to larger competitors, so I'm pretty confident that the company will be a formidable opponent capable of holding its ground.
For more Foolish insight on Qualcomm:
- The Most Fascinating Company in America
- Qualcomm Widens the Moat
- Qualcomm Bags Flarion
- Qualcomm Gets Personal
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Fool contributor Dave Mock kept a low profile in grade school and never had to give milk money to the class bully. He owns shares of Qualcomm. The Motley Fool has an ironclad disclosure policy . Dave is the author of The Qualcomm Equation .
