The Markman Note: Activists at Qualcomm’s Gate
Apr. 21, 2015 (Mimesis Law) — It was another busy week at the intersection of investing and intellectual property, with continued patent litigation activity of interest to investors — across a number of industry sectors. Welcome to the fourth issue of the Markman Note, where we take a look at how the market reacts to patent litigation events, and try to anticipate what the next catalysts will be. Hopefully you have had a chance to catch our video “Markman Minutes” (HERE, HERE, and HERE) on what we consider the biggest current patent stories of interest to investors. Finally, we want your feedback and suggestions, so feel free to send it along to firstname.lastname@example.org or to @markmanadvisors on Twitter. You can also visit our website at www.markmanadvisors.com. Questions from the readership are always welcome as well; we will try to get you answers in future issues of the Markman Note.
The Big Story: Qualcomm – Will FRAND continue to be its friend?
Qualcomm got hit with the activist stick this week and we’re all over it. Jana Partners, one of Qualcomm’s largest investors, has called for the company to spin-off its chip-making business from its patent-licensing business. Qualcomm’s patent-licensing business, which primarily licenses standard-essential patents, drives most of its profits. A pending decision from the Ninth Circuit in a case between Microsoft and Motorola is expected to clarify the scope of royalty rates a company can seek when licensing standard-essential. The Ninth Circuit decision is a case of first impression, and risks making licensing standard-essential patents less lucrative, which could impact Qualcomm’s bottom line.
We’ll be coming out with a Markman Minute on the company later this week. In the meantime, our article on Seeking Alpha highlights some of our impressions regarding the proposal by Jana Partners that the company consider a breakup.
Recent Patent Litigation-Influenced Moves
Perennial IPR target VirnetX (VHC) was hit by a pair of petitions filed by a NYC-based hedge fund, Mangrove Partners, in an attack similar to the Bass-Spangenberg filed petitions we discussed last week. Interestingly, prior IPR’s filed by Microsoft against these same patents were instituted, but later dropped when Microsoft and VHC were able to reach a settlement. The prior institutions bode well for this latest salvo by Mangrove on the merits, and once again VHC investors will need to keep one eye on the USPTO as they hope that the upcoming retrial of damages in their case against Apple goes forward without further delay. This entire situation reflects the challenges that the VHC’s of the world need to overcome to earn patent revenue that justifies their market caps, and that lead to solid returns for their patient investor base.
Specialty pharmaceutical Actavis settled its generic patent litigation challenge against Depomed (DEPO). Gralise is an important drug for Depomed, and investors were likely pleased to hear that the final patent litigation against generic challengers still pending was settled. Importantly, the appeal from the District Court case finding in DEPO’s favor will now be dismissed, while this settlement will need review by the appropriate government agencies. This case highlights the important role settlement plays in maintaining exclusivity for branded pharma companies, and for investors, provides a timely reminder that settlements can: a) happen at any time and b) at any stage in the litigation process.
Unwired Planted (UPIP)
The company got a new CEO and this is a GREAT opportunity to point out the importance of management for companies whose main business is patent assertion. UPIP has struggled since its blockbuster licensing deal with Lenovo because of some litigation setbacks and the board obviously felt that a change at the top was necessary. The hiring of a IP-focused veteran to lead the company was welcomed by investors, but as with anything, in order for UPIP to make the long climb back up to where it was at the time of the Lenovo deal, execution by management will be key.
Inheriting a patent lawsuit is no fun for companies, so investors in VMW are probably happy that the company was able to settle the pending cases filed by Good against a company Airwatch, that VMW had acquired for $1.54bn. As with most settlements, financial terms are vague, but it does look from the press release that a cross-license was agreed to, as well as the ever-valuable discussion of “opportunities for joint interoperability”. So maybe the latter is too tenuous to be of much worth, but for VMW investors, knowing that this unwanted byproduct of their Airwave acquisition is behind the company is a positive bit of news. For everyone else, this matter shows how important it is for investors to keep an open eye out for settlements at any time, as discussed above in the note about DEPO.
The Week(s) Ahead — Expected Events
Upcoming Federal Circuit argument in Parkervision v. Qualcomm — May 8, 2015.
Disclosures and Disclaimers:
Nothing in this material is intended to constitute legal or investment advice of any kind, nor is any of this material based on any non-public information of any kind. In addition to my work at Markman Advisors, I am also a name partner at a NYC-based intellectual property litigation boutique firm, Kroub Silbersher & Kolmykov PLLC (www.kskiplaw.com). Markman Advisors is affiliated with a Houston-based investment management firm, Perdix Capital Management, which may have existing or potential positions relating to situations discussed in this material. Markman Advisors also provides consulting services to buy-side investors, including hedge funds and family offices, that may also have or enter into positions relating to situations discussed in this material. Questions or comments can be directed to me at email@example.com. All suggestions are welcome.
Main image via Flickr/Kārlis Dambrāns