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Over the last few years a new business has emerged involving patents. More and more small technology companies are looking to make a business of monetizing their patent portfolios. For investors this new battlefront can bring very nice rewards in small technology stocks. Many of these stocks have been ignored by the market until patent news hits. From my research I have found that once stocks approach their Markman Hearing (more on this below), their stock prices appreciate. In this article I am going to look at one such stock that has an upcoming hearing, On Track Innovations Ltd (NASDAQ:OTIV), on May 7th and 9th.

When a company files a patent lawsuit the slow arduous move through the court system begins. The key event that tends to move stocks involved in patent litigation is the Markman Hearing. A Markman Hearing is a pretrial hearing during which a judge examines evidence from all parties on the appropriate meanings of relevant key words used in a patent claim. It is also known as a "Claim Construction Hearing". It is at this hearing where a companies patent claims can be viewed as holding merit. Positive decisions from Markman Hearings can see the beginnings of large price appreciation in stocks. For investors this offers a chance to get in on the ground floor of a stock.

Last March OTIV announced it had filed a patent infringement lawsuit against T-Mobile (OTCQX:DTEGY). The company alleges that T-Mobile sells Near Field Communication (NFC) enabled phones that infringe OTI's U.S. Patent No. 6,045,043. NFC technology enables contactless payments with mobile phones, loyalty programs, data mining, and other applications. This patent is part of OTI's extensive intellectual property portfolio, including over 100 issued patents and pending patent applications encompassing product applications, software platforms, system and product architecture, product concepts and more in the fields of near field communications, contactless payments, secure ID, petroleum and parking solutions.

On Wednesday OTIV announced that it had elected a new Chairman of the Board, bringing an end to an era in the company that saw a dissident shareholder fight and the resignation of its previous officers. During this battle over the past year the stock lost 50% of its value. Now that a new management team is in place, and its Markman Hearing approaching, the tide may finally have turned for the positive for OTIV. For this reason I believe OTIV should be viewed as a very nice add for technology investors.

OTIV appears ready to monetize its patent portfolio. In the press release announced this week, the company stated that they anticipate there will be several upcoming complex negotiations for licensing arrangements and potentially some legal actions to protect OTI's patent rights. The words "several" indicate to me that the company is getting ready to file more patent lawsuits. It may also indicate that the company anticipates possible licensing deals in the near term. Since the release of this press release OTIV has seen its stock gain 30%.

Other companies that have seen large price appreciation over the last year as a result of positive Markman Hearings are of course Vringo, Inc. (NASDAQ:VRNG), and ParkerVision, Inc. (NASDAQ:PRKR). VRNG had some early successes from its hearing against Google Inc (NASDAQ:GOOG), winning its case. The stock has soared 300% since its Markman Hearing. PRKR has been involved in litigation against QUALCOMM Inc. (NASDAQ:QCOM) and its stock has doubled since its Markman Hearing. From my research it appears that small technology companies have a high win rate when it comes to initial Markman Hearing results, with their stock prices appreciating into, and out, of them. For this reason shares of OTIV look very attractive here. This past week also saw Microsoft Inc. (NASDAQ:MSFT) fall victim to the patent lawsuit business after CopyTele, Inc. (COPY) sued them for patent infringement. Shares of COPY have since rallied 50% on the news.

I must mention the downside risk that exists in patent litigation. A recent example is VirnetX Holding Corporation (NYSEMKT:VHC) and its patent suit against Apple Inc. (NASDAQ:AAPL). Shares of VHC are down 50% this year on disappointing news, highlighting the risk of eventual failure in patent litigation. However, it should be noted by investors that since its Markman Hearing the stock still doubled. The takeaway from this is that for investors getting in prior to the hearing, the downside is limited, and the upside very nice.

A look at the financials of OTIV show a company with $18m in cash. Annual revenues for 2012 were $40m, down 22%. However, this was under the old management team and the new CEO and Chairman brought in by OTIV look ready to turn things around.

The patent wars, as many have come to call this new business, is showing no signs of letting up. Almost weekly we see another large technology stock being sued for patent infringement. The incentive for large technology companies to sign licensing deals or just outright buy patents is growing. Investors should watch this development closely. Over the last year we have seen stocks enter Markman Hearings and emerge with higher stock prices. The patents that OTIV have could key for a solid turnround for investors this year.

Disclosure: I am long OTIV, QCOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.