What's going on?

On Friday, Apple filed a $1 billion lawsuit against Qualcomm (tweet this), one of the world�s biggest makers of the chips that power smartphones and a major Apple supplier, for allegedly abusing its market dominance by unfairly overcharging Apple.

What does this mean?

Qualcomm owns a bunch of patents for the chips that power smartphones. It licenses that technology to companies like Apple, and charges them a fee. Apple says that Qualcomm charged an unfairly high price and essentially forced Apple to pay it because there were no alternative providers of the technology. This is not the first time that investors have heard of this controversy. Last month, South Korea�s government fined Qualcomm over $800 million for anti-competitive practices, and earlier last week the US government also sued Qualcomm for a similar reason. Qualcomm disputes all the allegations and says it will fight against them.

Why should I care?

The bigger picture: This is a potential example of illegal, anti-competitive actions in practice.

We often write about the risk of governments blocking mergers or acquisitions due to concerns that the combined company would become too powerful within an industry. The fear is that companies do exactly what Qualcomm is accused of: use their dominant position to demand unfair prices for their products. Competition authorities (an arm of the government) aim to get ahead of the problem by ensuring industries have enough companies to be truly competitive � but when that�s not the case, and a company employs an unfair pricing strategy, the government can levy huge fines.


For the stock: Qualcomm�s stock got hit.

Billions of dollars of potential legal costs are, of course, a negative for Qualcomm�s stock price � as well as the possibility that a ruling against Qualcomm could limit the price it could charge for its technology in the future. Both factors likely contributed to the stock dropping about 2.5% as the news broke late on Friday.