The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary of Apple Stock Forecast

This is a follow-up to my previous article explaining why Apple is unlikely to hit the $150 price target of professional Wall Street Analysts.

Apple has another tangible headwind –it lost a patent infringement complaint filed against it by Wisconsin Alumni Research Foundation (WARF) last year.

I opine that Apple would likely settle the damage/penalty of up to $862 million, rather than appeal the guilty verdict.

Intel also got sued by Wisconsin Alumni Research Foundation but chipzilla settled it out of court.

A U.S. jury decided yesterday that Apple (NASDAQ:AAPL) willfully violated the patent/technology owned by University of Wisconsin-Madison. The patent infringement complaint was filed last year by the Wisconsin Alumni Research Foundation (WARF) affects all the ARM-based processors used by Apple inside the iPhone 6s , iPhone 6s Plus, iPhone 6/6 Plus, iPad Mini 3, and iPad Air 2.

The jury found Apple guilty of deliberately using technology related to patent no. 5,781,752 , which covers processor design that helps improve parallel processing/energy efficiency, without proper permission and licensing. The jury also believed WARF’s claim that Apple refused to license the said USPTO-granted intellectual property.

WARF also won its case that Apple deliberately infringed its patent by claiming the said processor-related design as its own in Apple’s own patent filings.

This patent was already granted to University of Wisconsin in 1998 and Apple’s unlicensed use of the said technology could cost it up to $862 million in damages.

(Source: USPTO)

The jury trial will now proceed to determine just how much Apple should be penalized for its illegal use of patent no. 5,781,752. The case now covers A7, A8, A8X, and the new A9/A9X processors. WARF claims its patent/technology helped Apple design ARM-based processors with improved power efficiency and performance enhancements.

Settle It Out Of Court Now Like Intel Did

I opine that it would be better for Apple to negotiate for a settlement as soon as possible. Yes, Tim Cook has the money to pay dozens of lawyers to appeal this guilty verdict to higher courts. However, even a non-lawyer like me knows all too well that prior patent granted overrules subsequent patent filings. WARF’s 1998 patent grant gave it an unassailable patent infringement case that is unlikely to be reversed by an appeals court.

Apple’s deliberate attempt to invalidate University of Wisconsin’s 1998 patent and claim as its own, absolutely reeks of deliberate malice. It might be more prudent to just avoid further litigation and go for a negotiated settlement. Tim Cook should heed the action of chip-expert, Intel (NASDAQ:INTC).

Intel immediately went for a negotiated settlement in 2009 when WARF sued it over patent no. 5,781,752. The said patent/technology was also used when Intel made the Core 2 Duo and subsequent processors. If Intel, a decades-old leader in processor design recognized the validity of WARF’s claim, Apple will find it almost impossible to win a case to invalidate it.

The potential risk now is for Apple to incur more legal expenses and higher penalties should it decide to appeal the guilty verdict. It makes so much money from selling the iPhone and iPad. Paying a small licensing fee to WARF is certainly cheaper than risking a total sales ban request on all patent-infringing iPhones and iPads in the United States.

Algorithmic Forecast For Apple Is Also Not Optimistic

My doubtful assessment that Apple is unlikely to hit $150 in 12-months is also supported by I Know First’s pessimistic algorithmic forecast for AAPL. The latest October 11 forecast for Apple says that even after 12 months, the stock is unlikely to move up from its current price of $112.

The +1.45 12-month forecast score of AAPL says it has little probability of giving a tidy profit to any investors who buy the stock now. The algorithmic forecast engine of I Know First is machine learning and I believe it takes into account the negative outlook that hedge fund managers are dumping more AAPL shares rather than them buying more.

My Takeaway

Apple’s pricey iOS phones and tablets currently use the processors that were found to have copied WARF’s patented processor design. WARF now has the prerogative to request a U.S. judge to issue a ban on U.S. sales of the iPhone/iPad. Tim Cook should charm the WARF people and make them an offer before the jury decides the penalty amount it must pay.

The patent-grab attempt of Apple against the University of Wisconsin also leaves a bad taste in my mouth. Like I said, the super-high margins on iPhones should have made it very affordable for Apple to have just paid a license to WARF before the patent infringement case was even filed.

A patent-infringing A9/A9X processor is pretty unimpressive when its record-breaking benchmark scores involved using an unlicensed design of a third-party firm. The lesson I learned now is that Apple is never too rich or too famous for ordinary Americans to let it go scot-free when it willfully violates patents owned by smaller institutions.

As per the machine-learning forecast of I Know First, Apple might be a reasonable short-term target for brave sell-side players right now. AAPL’s stock has been on a downtrend recently and a U.S. court defeat over a very important patent case makes it more vulnerable for more pessimism from institutional investors and learned event-driven investors.

If I had the money to go short, I would short AAPL now. Unfortunately, I only have a very tiny portfolio that cannot support margin calls. I’m now actively getting out of my remaining exposure to AAPL and use the cash proceeds to buy other stocks that now offer better long-term prospects.