A federal judge has told Qualcomm (NASDAQ: QCOM) that it can no longer make chips based on three patents held by rival Broadcom (NASDAQ: BRCM). The company can make use of the intellectual property for another year, giving its some time to reach resolution with its rival.

Qualcomm will almost certainly have to pay royalties if it wants to keep marketing chips based on the Broadcom patents.

According to The Wall Street Journal, "The chips are used in two kinds of third-generation cellular networks -- one called EV-DO, which Qualcomm developed, and another called WCDMA that is supported by a broader array of chip makers."

Reuters quotes Broadcom's general counsel as saying, "Broadcom should not have to compete against companies that use Broadcom's own patented technology against us, and this injunction puts a stop to Qualcomm doing just that."

It now appears that Qualcomm's strategy of leaning on customers and rivals has come to an end.

Another court loss for Qualcomm originally appeared on BloggingStocks on Tue, 01 Jan 2008 13:40:00 EST. Please see our terms for use of feeds.

This week, Vonage Corp's (NYSE:VG) stock plummeted because a federal judge issued an injunction against the company regarding a patent dispute with Verizon Communications Inc. (NYSE:VZ).

Yes, litigation can be harsh on investors. And, usually companies disclose their legal risks in their SEC disclosures. For example, Vonage disclosed its Verizon litigation in its IPO filing.

As for investors, these disclosures don't really matter much. After all, most companies have litigation. And, even legal experts have difficulties determining the probabilities of a case.

Well, Barron's [a paid service] has an interesting article on the topic for this week's issue. The main focus of the article is the analysis of Nick Rodelli, who is the legal guru with the Center for Financial Research and Analysis.

For example, he thinks the World Wrestling Entertainment (NYSE:WWE) could get a nice bump in revenues if it wins some of its litigation on licensing.

On the other hand, he is concerned about the impact of antitrust litigation on MasterCard Inc. (NYSE:MA) and thinks the stock price has not reflected the risk. He also considers this to be the same situation with Sherwin-Williams Co. (NYSE:SHW). The company faces litigation regarding the sale of lead paint many years ago.

Rodelli thinks that it is common for investors to misprice stocks when factoring in litigation. And, this inefficiency is actually an opportunity for investors -- although, it requires quite a bit of expertise to pull it off.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Barron's: The perils -- and opportunities -- in litigation originally appeared on BloggingStocks on Sat, 24 Mar 2007 16:10:00 EST. Please see our terms for use of feeds.