ParkerVision (NASDAQ:PRKR) is a development-stage company in the process of commercializing patented radio-frequency (RF) technology in the telecommunications industry that owns over 200 U.S. wireless technology patents. ParkerVision filed a lawsuit versus Qualcomm (NASDAQ:QCOM) on 7/20/11 alleging broad-based infringement of PRKR's technology.
On October 17 2013 a Florida federal jury found that Qualcomm infringed ParkerVision patents. The jury awarded ParkerVision $172 million in past damages, and awarded ParkerVision a royalty of .23 cents per unit on future use by Qualcomm. Briefs were submitted by both parties on the remaining issues scheduled for last Thursday May 1 in front of Federal Judge Dalton in Orlando. I attended that hearing.
On the long plane ride home I had an opportunity to review my notes regarding the hearing, the new law suit, and the possibilities that Kevin Rivette and 3LP brings "to the table" for ParkerVision. First I'm going to do the math, and then I will explain how I reached my conclusions.
From an easy to do math standpoint I believe that ParkerVision will have over $200 million in their bank account sometime in 2015. Add the approximate $25 million and 0 debt on their current balance sheet, and it becomes clear that they require no further financing, and therefore no future stock dilution.
I further believe that ParkerVision will begin to enjoy royalty revenue of over $100 million per year, which will translate into approximately $.55 per share in after tax earnings or even higher. At a multiple of 15 plus the $2 dollars per share in cash this equates to approximately $10.25 per share price and does not include any value for the second law suit, or any licensing and/or product agreement that 3LP will likely bring this year. The stock currently trades in the $4.50-$5.50 range. In my opinion, this stock has upside of 50% to 100% over the course of this year. As the risk from the first law suit fades away with the final ruling and it becomes clear that Qualcomm's chances on appeal are far less than the "average statistic" on appeal of 15 to 20%, ParkerVision's valuation will continue to move closer to the $10.25 per share based on sustainable earnings plus cash. It will move higher as ParkerVision and its partner 3LP demonstrate that Qualcomm is not the only wireless chip company that needs ParkerVision's technology.
It was clear that Judge Dalton was well prepared for the hearing. He entered the courtroom with voluminous material which he used to pepper the lawyers with relevant questions on the various open issues. These papers were likely his final rulings in the making, and he used the hearing to finalize in his mind whatever undecided issues he's still working through.
The outcome of the hearing appears to be shaping up somewhat predictably. Judge Dalton issued bench rulings denying Qualcomm's request to overturn the jury's verdict of $173 million in damages. He further denied ParkerVision's request to overturn the jury's verdict of no willfulness and he also declined to issue a permanent injunction which would stop shipment of Qualcomm's products in the US. In essence, he is supporting the jury's verdicts and is very likely to do so on the two remaining issues as well - Qualcomm's request to overturn the jury's verdict on infringement and on no invalidity. I predict these last two items will stand as per the jury's verdict. Qualcomm did not put a single witness on for infringement so it has no complaining rights on who the jury believed. On no invalidity, Qualcomm did not come close to proving that there was a reference that contemplated all of the elements of ParkerVision's claims. This burden was Qualcomm's and in my opinion, they failed completely. ParkerVision's briefs on both these issues are absolutely outstanding!!! Finally, the Judge issued a surprise order to ParkerVision and Qualcomm to negotiate over the next 30 days and inform him if they are able to reach an agreement on what the increased ongoing royalty should be, and if the parties cannot reach an agreement, the Judge will make it for them!
This is truly a David vs. Goliath case. Only my opinion - but the law needs to be changed for those Goliath companies who clearly take advantage of a small company with few resources. Hopefully the Judge will enhance the ongoing damages in a meaningful way.
It certainly is encouraging that the Judge clearly stated there will be an increased royalty for the duration of the patent re Qualcomm.
So what happens post ruling? ParkerVision's latest complaint against Qualcomm makes things even more interesting now. Instead of ParkerVision having to wait the year through an appeal process, it has gone proactive in defending its patented technologies. I believe this will have a profoundly positive impact in multiple ways and bodes well for shareholders of ParkerVision.
Having spent ten hours on a plane I had a chance to read the new complaint and think about the short and long term effect of this latest law suit. This new complaint covers ParkerVision's transmitter technology. This is completely new and was not in the first case. It covers baseband technology that relates to how transmitters and receivers must be controlled to achieve multi-mode and multi-band operations which are key elements of every smart phone that is shipping today. The transmitter technology was one of the reasons that Qualcomm was able to take over the smartphone chipset marketplace. It is technology that covers how the baseband maintains calibration of the transmitter and receiver so that the chips that Qualcomm makes are cost effective and reliable. It is technology that covers how the baseband can convert one mode of wireless operation to another, such as a cellular wireless signal being converted to a Wi-Fi wireless signal.
The first case had over 300 patent claims from which ParkerVision ultimately won on 11 claims from 4 patents that it took into the court room that cover a single technology, RF downconversion by energy sampling. The second case has over 500 patent claims and appears to cover 4 completely different technologies! The first case began with a complaint that was 5 pages long and contained 7 different patents. This second complaint is 54 pages long and contains 7 different patents.
This would seem to indicate that ParkerVision and McKool conducted a great deal of due diligence before filing this case. I'm stressing the due diligence aspect of McKool because of what took place at the May 1 hearing. To convince the Judge and jury in the first case that ParkerVision's technology was of little value, Qualcomm tried to make the case that all the value of their chipsets is in the BASEBAND. We heard time and time again at trial and during the May 1 hearing. In spite of this, the jury still awarded ParkerVision approximately .23 cents per unit, which is 5 to 6% of the price of a transceiver chip. ParkerVision's second law suit against Qualcomm is based on BASEBAND. Qualcomm consistently said ParkerVision's technology is only RF and is not part of valuable baseband. Now this lawsuit says the baseband contains ParkerVision's technology as well. While the first law suit involved a product worth $4.00 the second suit involves royalties on a product worth $20 or greater. Do the math!!! If a $4 chip generates 200 million what does a $20 dollar product generate? It looks like Qualcomm's litigation tactics may have just walked into damages quicksand.
The second case also illustrates another important consideration in determining a proper valuation for ParkerVision. ParkerVision is not a "one trick" technology company. Rather, ParkerVision has developed a number of important technologies that has enabled the largest wireless chip company to deliver many of the important features of their products, with many of them being in the baseband. The visibility of the second law suit will put ParkerVision truly on Wall Street's radar.
The timing of the second case should also be very good for continuing to build shareholder value. Assuming that ParkerVision and Qualcomm don't settle their differences and become partners rather than adversaries (stranger things have happened) and assuming the length of this trial is similar to the first case, the trial will start somewhere in the middle of 2016.
If Qualcomm appeals the first case as they said they would, the results of the appeal will likely be issued by the middle of 2015. In my opinion, the Judge has been so careful I predict there is little to no chance the CAFC will overturn the District Court final ruling. If Qualcomm appeals to the Supreme Court they will not accept it. This is truly a "vanilla patent case".
At this point Qualcomm will then be forced to pay ParkerVision a meaningful 9 figure number, something greater than $400 million and possibly as much as twice that figure. Additionally, Qualcomm will have on-going royalties that are likely to be a minimum of $100 million per year and depending on market growth and enhanced damages could be as much as 2 or 3 times that number. ParkerVision will have the balance sheet necessary to stay the course on the second case and should have little motivation to settle.
One last observation before closing - with the judge's decision last Thursday, Kevin Rivette is now free to clearly state to all the potential customers that it is far easier and less expensive to sign a deal with ParkerVision than to face litigation. I am encouraged there will be success sooner rather than later on Licensing deals.
I have been a shareholder in ParkerVision for 10 years. At a time when many technology stocks have become too expensive, I can now finally say this is one stock that will be very rewarding to own and that has the foundation to be rewarding for many years to come. This, regardless if Qualcomm and Parker reach an agreement, and regardless if ParkerVision partners with a large overseas company or if it remains independent and creates many licensing agreements across the large spectrum of opportunities!
Disclosure: I am long 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.