Judge Ruling A Big Win for MGT Capital
Investors who are following public companies currently involved in patent infringement litigation have quickly realized that the most profitable and predictable catalyst in the litigation process is when the plaintiff company issues a company press release announcing the news of a scheduling order by the court setting the date of the crucial Markman Hearing.
For those unfamiliar with a Markman Hearing, it is the most important hearing in a patent litigation trial and a market moving event. At this hearing, both parties argue to the judge what should be covered under the patent infringement in the case. The judge then rules and thereby establishes the basic parameters for the patent under review. This claim construction, as it is commonly referred, is then used by the judge (and jury) in the jury trial, if the case comes to that.
One would assume that the catalyst for a stock would not come until after the judge makes a final ruling in the Markman Hearings giving the plaintiff or defendant the advantage. This ruling usually happens within 30-45 days of the hearing. But what our analysis has found is that just the initial announcement of a Markman Hearing date can drive the stock of the plaintiff sharply higher.
To illustrate the important weight the market gives to the Markman Hearing date announcement, we have to look no further than three of the most closely followed cases currently underway involving public companies. This phenomena can be seen in the case of Parker Vision Inc. (NASDAQ:PRKR) vs. Qualcomm (NASDAQ:QCOM); Worlds, Inc. (OTCQB:WDDD) vs. Activision Blizzard (NASDAQ:ATVI); Blue Calypso (OTCQB:BCYP) vs. Living Social, Inc.
This summary of what happened to the stock price from the date of the official company press release of the Markman Hearing date explains what I mean:
Price on Day Markman Hearing Date Announced
Highest Price Post Markman Hearing Date Announcement
Highest % Gain Post Markman Hearing Date Announcement
Timeframe to reach highest % gain post Markham Hearing Date Announcement
Worlds, Inc. (OTCQB:WDDD)
Blue Calypso, Inc. (OTCQB:BCYP)
The dramatic rise in valuation of the plaintiffs' stock mentioned above just on the Markman Hearing date announcement can be explained in three ways. When a Markman Hearing date is set, the market realizes the following:
- The plaintiff has overcome the customary and preliminary filings to dismiss or change venue usually filed by defendants.
- The plaintiff's chances of receiving a favorable Markman Hearing ruling rise.
- The conditions become more favorable for settlement negotiations with a confirmed Markman Hearing date looming.
What was also noteworthy in this analysis is not only the 353% average gain in just 138 days, but the fact that it only took them an average of 68 days to quickly double with 100% gains:
Days for price to reach 100% gain post Markman Hearing Date Announcement
Blue Calypso, Inc.
Company Press Release of Markman Hearing Date is Major Catalyst
But the most important element of this article's analysis is that these three stocks all rose dramatically after their Markman Hearing date was announced via company press release. In investing, sometimes the key is not the price you pay for a stock, but the timing of when you buy the stock. News is most often the key driver for stock valuations up or down.
Based on this fact, opportunistic investors have a limited, short term opportunity to buy a stock, MGT Capital (NYSEMKT:MGT), in this same sector which has just received a judge's ruling setting their Markman Hearing date, but has yet to issue a press release with this news. The Markman date was just ordered by the judge two days ago. If MGT follows the predictable trend of its peers, investors can profit from establishing their positions in the stock before the news is released by an official company press release.
Although it has been two days since the court spoke, the stock has not reacted to the Markman Hearing date ruling yet because the universe of investors who follow these court proceedings and the public filings on PACER.gov are very few. Conversely, those who follow the official news releases issued by a company are very large. Because of the due diligence which led to the discovery of this recently issued ruling by the U.S. District Court in Mississippi, investors who read this article in time have a chance to act on this information before the larger investment community is aware.
MGT's Markman Hearing Date Ordered with News Pending
In the high profile patent litigation suit involving plaintiff MGT Capital versus the heavyweights of the gaming industry as defendants - Caesars Entertainment (NASDAQ:CZR), MGM Resorts International (NYSE:MGM), WMS Gaming (NYSE:WMS-OLD), Penn National Gaming (NASDAQ:PENN), and Aruze Gaming America - the judge in the case issued an order on June 17, 2013, setting the Markman Hearing date before Judge Carlton W. Reeves.
In adherence to the standard practice other companies have followed, you would expect MGT to issue a press release in the near future to inform the public of this important news impacting their high profile suit. Until that happens, MGT's unwarranted drop from $4.80 to $4.45 over the last two days on macroeconomic concerns unrelated to the company provides investors a brilliant opportunity to buy the stock on weakness before the news is officially released by the company.
If patent litigation sector analysis and history is an accurate forecast of what to expect in this case, MGT should react similarly to its peers referenced above with a sharp rise in the stock on any Markman Hearing date press release. Based on the average share price appreciation calculations in the cases presented (PRKR, WDDD.OB, BCYP.OB), the following could happen to MGT in the aftermath of the company's announcement:
- Short Term Price Target High Post Announcement: $15.70 (353% increase from $4.45 within 138 days of announcement)
- Timeframe to Reach 100% Gains if Announcement Comes on June 21: $8.90 by August 28 (68 days from announcement)
Fundamental Information on MGT Capital
On November 2, 2012, MGT Capital filed a high profile patent infringement suit against Caesars Entertainment, MGM Resorts International, WMS Gaming, Inc., Penn National Gaming and Aruze Gaming America, Inc.
MGT Capital Investments and its subsidiaries are engaged in the business of acquiring, developing and monetizing assets in the online and mobile gaming space. MGT Sports, Inc., a wholly owned subsidiary, owns a majority interest in FanTD LLC, an online daily fantasy sports wagering business. FanTD LLC owns and operates FanThrowdown.com, one of the leading daily fantasy sports websites.
MGT Gaming, Inc., a majority owned subsidiary, owns U.S. Patent No. 7,892,088 relating to casino gaming systems. In November 2012, MGT Gaming filed a patent infringement suit against Caesars Entertainment Corporation, MGM Resorts International, Inc., WMS Gaming (a subsidiary of WMS Industries, Inc.), Penn National Gaming, Inc., and Aruze Gaming America, Inc. The suit alleges that these companies are violating MGT's patent used in slot machines. The estimated present value of the royalties over the life of this patent range from $330 million to $4.5 billion.
In addition, the Company owns Hammercat Studios, a publisher and developer of videogames for digital distribution in the mobile app space.
MGT has a current market cap of only $31 million, a debt-free balance sheet, and approximately $8.5 million in cash. That cash position was bolstered recently when 678,934 warrants were exercised at $3.85/share adding a fresh $2,613,895 to the balance sheet combined with the $1.5 million sale of their Medicsight patents. Insiders own 17% of shares outstanding and the public float is only 3.8 million shares.
There is investment risk involved with any company involved in litigation. It is impossible to predict the final rulings of the courts or of any financial settlements with certainty. The judge in the MGT case has yet to rule on the multiple, preliminary motions by the defendants (WMS & Aruze) to dismiss and change venue. It seems those risks have been significantly decreased by the judge's recent order to schedule the Markman Hearing. One would think this claim construction hearing would not be taking place if the motions to dismiss or change of venue had a chance of a positive ruling. What the Markman Hearing date order implies is that the preliminary defendant motions are likely to be ruled against defendants WMS and Aruze and in favor of MGT Capital. These rulings could prove to be additional, positive newsworthy catalysts for MGT investors.
Disclosure: I am long MGT. 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.