The intellectual property (IP) space has been the subject of rumors and speculation here recently, as small companies-- Vringo, Inc (VRNG) and ParkerVision (PRKR)-- have seen inspiring one-year performances due to clashes with large technology companies over patent quarrels. These quarrels have left open a whole new door of opportunity for smaller companies that have been stomped on by larger companies who infringe on their patents, and these are patents that are important to the long-term success of the patent holders. It has become the ultimate high-risk, high-reward investment opportunity, and two investment firms are right at the center of this debate with unparalleled success.
A strong patent portfolio is important for all smaller enterprises, as they attempt to find an identity and a constant stream of revenue. In the past it seemed as though a patent was almost meaningless for smaller firms, as the larger ones could find ways around the protection that a patent is supposed to provide. But in 2012 we saw as companies of all sizes, from Vringo to Apple (AAPL), fought for patents and intellectual property. We also saw a string of acquisitions in an attempt to gain patents, and some organizations choosing to monetize patent portfolios. A good company knows that the key to long-term success is building a large patent portfolio that is also protected. Even companies such as Google (GOOG) have made strides in improving intellectual property, with the recent acquisition of Motorola Mobility.
Several companies have taken a stand against patent infringement, and two firms seem light-years ahead of other investors in successfully choosing the companies that will fight to maintain a strong patent portfolio. This may be helpful to investors in their decision making process by further examination.
In what seems like overnight, ParkerVision became one of the NASDAQ's best performing stocks, after a favorable ruling in its market hearing against Qualcomm (QCOM). The company is engaged in the business of designing, developing, and selling its radio frequency (RF) technologies, and until last year had only a $70 million market capitalization. Now the company has a valuation of $330 million, which has been mostly the result of assumption concerning a patent dispute with Qualcomm.
On February 21 the small company with no revenue received the favorable Markman Order against Qualcomm, a company with $20.50 billion in revenue, and more resources. The company must still seek an outcome to the litigation, but sees the Markman Order as a significant step towards resolving its claim that Qualcomm sold products that infringe on six patents owned by ParkerVision. This is a company with no revenue and very little cash; thus its patent portfolio is of utmost importance to its success and is its greatest asset.
While ParkerVision looks to fight against the semiconductor giant, Vringo initiated this fight with the industry's elite, and has since demonstrated to smaller companies that such cases can be won. Vringo has already won a 3.5% royalty rate on two patents in a case against Google, along with past damages. The company has and is also seeking compensations from other companies, and is pursuing larger payouts from Google. This is significant because the payout was on just two patents; meanwhile ParkerVision is fighting Qualcomm on six different patents, which is a battle that could be very lucrative for the small company if it wins the battle. Much like ParkerVision, Vringo has very little to no revenue, besides its recent payout from Google (and others in the suit), which in turn has made its patent portfolio its most valuable asset.
The moral of these two stories is that little companies are fighting back to maintain a strong patent portfolio and that a patent portfolio is the most important asset to a small company. These are small firms that are not allowing the larger more intimidating players to steal patents and potential revenue. These moves are creating large profits for shareholders, as ParkerVision is +380% and Vringo is +138% over the last year.
We have also seen an upsurge in institutional ownership and high-profile interest, most distinguished is Mark Cuban adding 100k to his stake in Vringo. But while new investors rush to buy stock in these companies, at a premium, two financial firms, Hudson Bay Capital and Iroquois Capital Management have led the way as the smartest money in the patent infringement realm. Both investment firms have seen tremendous returns on their respective initial investments in Vringo.
While ParkerVision and Vringo have performed the best with patent suits, companies such as VirnetX Holding Corporation (VHC) and Spherix Incorporated (SPEX) have also been included in the mix. The two financial firms, Hudson Bay and Iroquois, have been large investors in this space, and were founders of Vringo. Both firms have been well educated throughout the patent litigation process, and might be good to follow for a potential lead on where the next big litigation could happen next.
Currently, shares of the company Spherix Incorporated have traded higher. The stock increased from a price of $6.74 on Monday to close at $11.67 on Wednesday. The reason? Large stakes by both Hudson Bay and Iroquois in recently announced SEC filings of substantial investments, which further adds to the belief of investors that there could be a patent dispute on the horizon or in its Spherix Consulting segment, or possibly even its Biospherics Incorporated segment. Spherix may possess the same characteristics and potential upside that Vringo once showed. Last week a wholly-owned subsidiary of SPEX, Nuta Technologies, entered into a Letter of Intent with North South Holdings regarding a number of important patents to the company's future plans in wireless communications, which shows proof of Spherix building its patent portfolio. Although Hudson Bay and Iroquois Capital invest in companies independently of each other, it is very rare that we see both invest such large positions in the same company without that company having a strong patent portfolio or without there being a patent dispute on the horizon.
In addition to both firm's large positions in the stocks mentioned above, each has made additional investments as well, in companies that could be seeking patent damages. Hudson Bay is the most intriguing to me. At this point with both firms involved in the founding of Vringo as well as making successful investments in the other companies prior to large patent litigations, these might be two firms you want to follow for guidance in the confusing patent dispute realm.
The limitless possibilities for gains in the IP wars make investments in this space very attractive. The problem is identifying which companies have a fighting chance, and which companies are praying for a miracle. With both Hudson Capital and Iroquois Capital being investment firms, we cannot assume that every investment made is one in the potential IP infringement realm, but rather perform due diligence and try to determine, or wait and know, which companies are seeking damages for patent-related offenses. The track record of these two firms is quite remarkable in this specific space, and with so many retail investors trying to chase the gains of a patent infringement case, or the company developing the next great mobile application, it might be a good idea to add these two firms as part of your research in determining if your company of interest has a likely shot of success. As with any investment, it requires research to be successful and a higher level of risk tolerance with micro cap equities.
Disclosure: I am long VRNG.