Ahead of the open this morning, shares of mobile software and services company BlackBerry (BBRY 8.87, +1.17 +15.19%) were halted for what was eventually revealed moments later as an $814,868,350 payment in arbitration against Qualcomm (QCOM 53.78, -1.57 -2.84%) for royalty overpayments.
Essentially what the story boils down to is that QCOM was overcharging BBRY to license its products. On April 20, 2016, BBRY and QCOM entered into an agreement to arbitrate a dispute regarding whether QCOM’s agreement to cap certain royalties applied to payments made by BBRY under a license agreement between the parties.
BBRY made the royalty cap deal with QCOM when the company’s smartphone prospects were looking on the up and up. Unforeseeable to BBRY at the time, the company would fall on hardships in the smartphone market as bellwethers like Apple (AAPL 141.39, -0.24 -0.17%) and Samsung (SSNLF 1500.00, flat) would sprint to the front. As such, BBRY would drastically undersell their smartphone handset projections that were the grounds of the royalty deal. The company would then contend that in light of the decline in its handset sales, BBRY had overpaid on the guaranteed payments to QCOM.
BBRY has since announced its planned exit from the smartphone market in order to focus more on business areas which can drive growth. That being said, the business is not all lost as the company has made strides to become a more viable software and services company. Driving the next line of growth at BBRY, the company’s QNX software and licensing agreements will have to take center stage if this plan to return to growth has any legs.
The award announced today in favor of BBRY will likely aid the company’s balance sheet and give way for some strategic investments in the near future.