On October 17, 2013 a jury in Orlando found Qualcomm (NASDAQ:QCOM) had infringed four of ParkerVision's (NASDAQ:PRKR) patents. On October 24, 2013, the same jury awarded $173M in damages along with a finding of no willfulness. The judge now has to rule on many pre- and post-verdict motions.
During the week of November 11-15, we saw a quarterly conference call by Jeff Parker and multiple articles pushing the inevitability of significant near term revenues for ParkerVision. These are premised on two demonstrably false ideas - (1) an injunction against Qualcomm is likely, and (2) Qualcomm won't appeal.
No Possibility Of An Injunction
The test for a grant of an injunction in a patent infringement case is well established: "That test requires a plaintiff to demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law are inadequate to compensate for that injury; (3) that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. The decision to grant or deny such relief is an act of equitable discretion by the district court, reviewable on appeal for abuse of discretion."
ParkerVision has not and cannot establish any of the four criteria, much less all four. ParkerVision has been attempted to license D2D to many companies, and ParkerVision has no existing chip sales to protect, so (1) is clearly not met as their stated business is and has been licensing, and given these same facts, (2) is not met, as ParkerVision can be fully compensated by a future payment if the trial verdict survives appeal. Both (3) and (4) are utterly insurmountable for ParkerVision, as an injunction would halt about 80% of handset shipments into the US, so that an injunction would cause immense harm both to the public interest as well as Qualcomm. Based on the above, there is no possibility that this judge will grant an injunction.
Qualcomm Will Appeal
With no possibility of an injunction, Qualcomm has every reason to appeal, as they have an extremely strong appeal case. Over 50% of Markman rulings are overturned and I believe the Markman ruling had several flaws which should result in an overturn on appeal. All Markmans are done de novo on appeal (i.e., there is no deference to the original Markman). Well over 50% of Markmans are overturned on appeal.
The Markman definitions of sub-sampling, integrating energy, impedance matching and "differential down-converted output signal" are, in my opinion, highly likely to be reversed on appeal (and made a significant difference in the party's expert reports and conclusions, and hence the trial outcome.) In addition, ParkerVision used different and inconsistent definitions of "Generating a Lower Frequency Signal" - for its infringement contentions it used the judges definitions, and for its invalidity contentions it used Qualcomm's! The judge chastised ParkerVision for doing this when he denied ParkerVision's motion for Summary Judgment of No Invalidity, but then allowed ParkerVision to use the same (inconsistent) definition during arguments at trial.
I will publish an additional article going into more detail on these and other Markman issues at a future date, as the issues are somewhat technical and lengthy.
There are additional legal grounds that Qualcomm can use effectively on appeal. The fact that the jury found 18 of 19 products infringed even though no evidence was presented at trial and one of the products was supposed to have been removed from the case (by ParkerVision's agreement) leads to very strong grounds for reversal. I would like to emphasize this last point - the jury found a product guilty of infringement that wasn't even in the case!
The fact that the ParkerVision damages expert used a Nash Bargaining Solution (NBS) and that the jury accepted the NBS argument (changing the 50/50 split requested by PRKR to a 20/80 split of profits and thus used a "rule of thumb") is very good grounds for reversal on appeal. Judge Rader, the Chief Justice of Federal Circuit, where all patent cases are decided, has made it very clear that he intends to eliminate the use of NBS as a justification for such "rules of thumb", going so far as to announce this at a recent conference. ParkerVision, by asking for and getting NBS, has made a reversal on appeal extremely likely. There is still the possibility that Judge Dalton may modify the jury verdict by ruling on the outstanding JMOLs, eliminating some appeal issues; by drastically lowering the jury verdict and any royalties (in ruling on the above two issues.)
I've personally been through numerous patent appeals, and my experience leads me to believe that will take about two years after the appeal is filed to reach a final decision. The appeal can't be filed until the judge issues a final ruling and the appeal must be filed with 30 days of the final ruling. The current schedule in this case is such that the judge should have all issues fully briefed by January 2014. He can take as long as he want to issue his final rulings. I expect him to finalize judgment sometime in 2014, but exactly when is unclear. It seems unlikely that the Fed Circuit would rule before 2016, and as I have argued above, the most likely outcome would be a new Markman and a remand for a new trial, probably taking place no earlier than 2017.
No Other Company Will Settle With ParkerVision
One of the main reasons Qualcomm lost because of ParkerVision's extensive use of emails from 1999 (one from 2004) inflamed a non-technical jury. The jury verdict was clearly contrary to the technical evidence (and admissions by Prucnal), but the emails were understandable to and clearly swayed the jury. Since it is unlikely another company has similar email problems, it is far less likely that ParkerVision would be able to make much progress against other "infringers" without similar emails.
A significant fraction of the RF industry use active mixers or alternative passive mixers, which ParkerVision has admitted are not infringing (in motions and at trial, and to which admissions they are now bound.) Any companies and products using such mixers are safe, and Qualcomm is almost surely moving back to using either an active mixer or a non-infringing passive mixer. There is no fundamental advantage to passive vs. active mixers - passive mixers are simpler, but need an extra gain stage, while an active mixer combines the mixer and gain in a single stage - it is purely a matter of choice as to which to use, as both, in the end, have similar complexity and figure of merit. Whatever current receivers that use similar mixers to Qualcomm can shift (over a year or two) to non-infringing alternatives (if the ParkerVision patent claims survive appeal).
As to whether Kevin Rivette can be of significant help in adding new licensees, he was hired over 18 months ago (according to Jeff Parker in the recent conference call, but the press release was on Nov 14, 2012) ostensibly to assist in signing on additional licensees. Obviously, none have signed. According to the recent 10Q, a consultant recently vested 800,000 shares of ParkerVision stock as incentive for achieving stock price goals. Given that the only announced consulting agreement (that I can find) is with 3LP (Rivette's firm), it is reasonable to conclude that the 800,000 shares of PRKR stock went to 3LP, and that Rivette's main compensation is tied to PRKR's stock price rather than to closing deals.
Damages and Royalties Go Into Escrow Until End of Appeals
ParkerVision doesn't get any payments from escrow unless and until the appeals court rules in their favor. If the case is remanded for retrial in 2017, the second appeal (assuming the second trial goes in favor of ParkerVision) could plausibly be final around 2019, which is pretty much the earliest that ParkerVision could hope for receiving its first payment - from anyone - unless they win the first appeal.
ParkerVision Will Have Zero Product Revenues in 2014
ParkerVision was unable to deliver a working chip to Qualcomm pretrial and I have confirmed with my sources at Via that ParkerVision did not have a working RF transceiver chip as of a month or so before trial. Given this fact, there is zero chance that PRKR will have any chip revenues in 2014 since it takes a minimum of 12 or more months after anyone has a new but fully functional transceiver chip working in a cell phone to get to volume production. Every year since 2005 Jeff Parker has announced a chip design win shipping "next year" in high volume but never delivers. 2014 will be no different.
Given how ParkerVision used emails from Qualcomm's evaluation of D2D in 1999, I'm skeptical that any handset manufacturer will even be willing to work with ParkerVision at this point. It's virtually guaranteed that PRKR will sue any such partners eventually, using out-of-context emails from such good faith negotiations against such "partners" in a future lawsuit. I suspect that ParkerVision will be even more of pariah in the future, given this behavior. In the unlikely event that Samsung really was taking a ParkerVision transceiver chip seriously, after seeing this trial I can't imagine them continuing to work with PRKR.
Royalties & Design Around
I expect that Qualcomm will be able to announce a non-infringing alternative transceiver as early as 2014. There was testimony at trial that it would take up to three years to switch designs. This includes the substantial time it takes for the new chips to move through Qualcomm's extensive supply chain. What was not said at trial was when Qualcomm started the process and how far along they are, and when the first alternative chips would be shipped. Given that ParkerVision filed suit in July 2011, Qualcomm has had a lot of time to pursue alternatives.
There has been extensive discussion that Judge Dalton will enhance the jury's damages award in granting ongoing royalties. This is possible, but in doing so, the judge would be mandating the use of NBS as an alternative to normal industry royalty rates, and an enhancement of this number would be, in effect, an enhancement of an already arbitrary 20/80 rule of thumb split of profits (and would result in a nearly unheard of royalty rate of 15-25%, compared to the Via Telecom rate of a few percent, which is far more typical of industry rates.) The judge can rule pretty much as he pleases, but this possible outcome would seem exceedingly unlikely to survive appeal given Chief Justice Rader's comments as to how the Federal Circuit views the use of such rules of thumb.
There is the real possibility that Judge Dalton will reverse the jury's use of NBS, and either retry damages without NBS or use the Via contractual rate as the only allowed royalty numbers, as ParkerVision did not have an alternative damages number not based on NBS. Judge Dalton repeatedly said in open court that he was very uncomfortable with allowing NBS, recognizing that it was a significant issue on appeal, and that he would revisit the issue after the verdict when he addressed the JMOLs.
For reasons given above (no chance of injunction and the certainty of an appeal), I don't see any realistic possibility that ParkerVision will have any revenues in 2014 or 2015. In addition, I think the probability of a complete reversal of the trial outcome on appeal is fairly high, with either a remand for new trial (pushing the earliest revenues out to 2019) or (less likely, but possible) the grant of summary judgment on invalidity or non-infringement (which means that PRKR D2D patent portfolio becomes worthless.)
Without an injunction, it is Qualcomm not ParkerVision who is "in the drivers' seat."
Disclosure: I am short PRKR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am long a small amount of QCOM.