In the latest twist to a prolonged legal battle, a court in China has ruled that Apple Inc. AAPL-manufactured iPhones have infringed on two patents of QUALCOMM Incorporated QCOM. Consequently, the judge has issued an embargo on sales of some iPhone models in China although legal experts and intellectual property lawyers remain skeptic of the enforcement of the ban.

The Fuzhou Intermediate People's Court in China held Apple guilty of twin patent infringement and ordered an immediate ban on sales of older iPhone models, from the 6S through the X. Qualcomm will need to file a separate complaint in the enforcement tribunal to enforce the ban as provincial Chinese courts do not have the legal right to do so. Apple will also have the right to defend itself and appeal against the verdict in the enforcement tribunal, which is likely to delay the process and further extend the legal imbroglio.

However, the nature of the verdict given by two different courts in two different countries appears interesting. Qualcomm had initiated a patent infringement case in International Trade Commission against Apple in July 2017. A U.S. International Trade Commission judge gave verdict in October 2018 that Apple infringed on one of Qualcomm’s patents related to power management technology, but refused to ban the import of the mobiles in the United States, citing broader public interests.

Some critics view the verdict by the Chinese court as being politically motivated and the result of the continued trade war and Sino-American tensions related to Huawei, the leading telecom manufacturer in China. Meng Wanzhou, the chief financial officer of Huawei, was arrested in Canada in early December and faced probable extradition to the United States over potential violations of sanctions on Iran. China has issued strong protests against the perceived undemocratic act and the matter has remained a potboiler.  

Moreover, Apple is viewed as the direct competitor of Huawei, while Qualcomm is the leading supplier of chips to various leading smartphone brands in China like Xiaomi Corp, Oppo, Vivo and OnePlus. As a result, the verdict is alleged to be motivated by national protectionism and is deemed to be unfair on Apple. Some even argue that this could prompt Apple to reach an amicable settlement with Qualcomm, restricting the collateral damage within its sovereign territories and prevent China from gaining a political mileage from the dispute.

Qualcomm has recorded an average loss of 11.8% in the past year while the industry has gained 6.4%.

Whether a core business focus and favorable verdicts can indeed help the company to turn tables and improve its sagging shares remain to be seen. Nevertheless, we remain impressed with the inherent growth potential of this Zacks Rank #1 (Strong Buy) stock. Other top-ranked stocks in the same space include Juniper Networks, Inc. JNPR and Harris Corporation HRS, both carrying a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Juniper Networks surpassed estimates in each of the trailing four quarters, the average positive earnings surprise being 11%.

Harris outpaced estimates in each of the preceding four quarters, the average earnings surprise being 7.1%.

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