Is Zecotek The Next ParkerVision?

| About: Zecotek Photonics, (ZMSPF)


Favorable Markman ruling for Zecotek is a positive milestone for the company's vast IP portfolio.

Parkervision's IP legal dispute is a relevant case study to compare Zecotek's current IP dispute with St. Gobain and Phillips.

Zecotek’s strategic commercial partnership with the Hamamatsu Corporation positions them to be a key source for the critical components necessary for Photonics Enabled Technology industry.

Zecotek has commercial technology outputs and milestones, not just potential IP infringement value.

Zecotek Photonics, Inc. (OTCPK:OTCPK:ZMSPF) was recently awarded a favorable ruling in it's Markman hearing in their ongoing efforts to defend its IP against huge multi-national corporations. Many investors in the IP space are wondering if it will fit the pattern set by Parkervision (NASDAQ:PRKR) in their ongoing patent litigation battles with Qualcomm, Inc. (NASDAQ:QCOM). While there is nothing wrong with the numerous Patent Assertion Entities (PAEs) that are publicly traded, (or as some call them, patent trolls), Zecotek fits more into the ParkerVision mold, a real operating company with intellectual property that it believes is being infringed upon by huge multi-national corporations

Background: Zecotek Photonics

Zecotek is a photonics technology company that creates next-generation laser, imaging, and 3D display products for use in the industrial, scientific and medical industries. In March 2009, ZMS received North America's "Best Enabling Technology" award from Frost & Sullivan, and in February 2014, was named a 2014 TSX Venture 50 company by the Toronto Stock Exchange Group. Zecotek has an intellectual property portfolio of over 50 patented and patent pending photonic technologies. The Company is still an early-stage venture, with their last twelve month's of Revenue (as of January 31st, 2014) recorded at slightly less than $100,000, with EBITDA of -$4.3 Million.

Strategic Partnership

In July 2013, Zecotek signed a joint collaboration partnership agreement with Hamamatsu Photonics (TSE:6965), a publicly traded Japanese company with $3.5 Billion in market capitalization and over $1.0 Billion in LTM Revenue) to commercialize Zecotek's existing imaging technologies related to the creation of scintillation crystals. In November 2013, Zecotek received a $1.5 Million order from their Japanese partner for an unnamed third party OEM of positron emission tomography (PET) medical scanning devices. As of June 2014, Hamamatsu has not put in a larger order of more significant size, which investors are all looking forward to further validate the commercial relationship.

About the Lawsuit

In February 2012, ZMS announced that they brought a lawsuit against two companies, Compagnie de Saint-Gobain (ENXTPA:SGO), a French materials company with a $32 Billion market capitalization, and $57 Billion in LTM Revenue, and Koninklijke Philips N.V (ENXTAM:PHIA), a Dutch multi-industrial conglomerate with a $29.5 Billion market capitalization, and $31.8 Billion in LTM Revenue. The lawsuit is being heard in the U.S. District Court in Ohio, and claims that Saint-Gobain's currently commercialized LYSO crystals infringe Zecotek's patent and that Philips is also liable because they use these Saint- Gobain crystals in their commercialized PET scanners. Zecotek's lawsuit points to alleged infringement of their patent (7,132,060) covering the substances and chemical formulations to grow their LFS crystals, which was granted to them in November 2006. Zecotek has retained the law firms of Susman Godfrey LLP and Loop Intellectual Property Law PLLC to represent them.

On May 13, 2014, the U.S. District Court of Ohio issued its patent claim construction ruling, or Markman Order, regarding the ongoing patent infringement action against defendants Saint-Gobain Corporation and Philips. In the Markman Order issued, the Court adopted interpretations that Zecotek believes are favorable on the key terms in the litigation dispute, and opens the way for a trial to begin.

While these are all positive developments for Zecotek, one of the major questions that remain is: Will the company be able to fully fund their lawsuit against significantly more capitalized adversaries? As of June 2014, the company has only $1.4 million in cash on their balance sheet, and continuing operating losses. In order for Saint-Gobain Corporation and Philips (and investors) to take these legal actions more seriously, they will need to raise capital and strengthen their cash balance for the battle ahead.

A Quick Look Back at ParkerVision

ParkerVision went public in 1993, as a developer of proprietary radio frequency (RF) technology for wireless and cellular communication networks. For 18 years, ParkerVision had difficulty bringing their technology to the market, with their stock trading sideways at best. In 2011, (when its stock was trading at $0.46), it filed a federal lawsuit in the U.S. District Court of Florida against Qualcomm Incorporated , seeking unspecified damages and injunctive relief for infringement of six of its patents related to RF receivers and the down-conversion of electromagnetic signals.

In February 2013, the U.S. District Court of Florida sided with ParkerVision on most key issues in the Markman hearing for its patent case, clearing the way for the case to go to trial. A Markman hearing determines definitions of disputed technical terms in a lawsuit, and a final ruling involving those terms is often considered a critical piece of any patent case. Of the 44 terms that were under dispute and included in the Markman Order, the judge sided with ParkerVision's definitions on 40 of the terms. One day after the Company's Markman hearing, the stock was trading at $3.35.

In October 2013, a jury in Orlando found that Qualcomm infringed four ParkerVision patents and awarded them $173 million in damages, which was the second-biggest patent verdict in 2013, behind the $290 million awarded to Apple Inc. (NASDAQ:AAPL) in a retrial of its fight with Samsung Electronics Co. Ltd. (KOSE:A005930). ParkerVision is now demanding royalties from Qualcomm for the infringing products being shipped into the U.S. through the year 2022. While the size of future royalty payments is still unknown, an Equity Research Analyst from Ladenburg Thalmann & Co. Inc. put out a report in May 2014 that he believes that ParkerVision could generate royalties in excess of more than $100 million starting in 2014.

In May 2014, ParkerVision filed a second patent suit, contending that Qualcomm has been infringing on seven additional patents, not related to the current RF down-conversion technology and names the Taiwanese mobile company, HTC Corporation (TSEC:2498), which is one of Qualcomm's biggest customers. As of May 20, 2014, ParkerVision was trading at $4.62 with a $445 million market capitalization.

Not a Patent Troll

Neither ParkerVision or Zecotek are Patent Assertion Entities, they are operating companies whose primary business is to try and commercialize the existing technologies they created. They are significantly different from the numerous, well-known public companies whose sole business is to seek enforcement of intellectual property they have acquired from others, including Acacia Research Corporation (NASDAQ:ACTG), VirnetX Holding Corp. (NYSE MKT:VHC), Vringo, Inc. (NASDAQ:VRNG), CopyTele, Inc. (OTCQB:COPY), and Marathon Patent Group, Inc. (OTCBB:MARA). These businesses are legitimate and pursue their businesses according to the law, however, ParkerVision and Zecotek represent something different with the upside of both major patent litigation and the potential for significant commercialization milestones in the near horizon.

Zecotek has made it past this very important Markman Order hurdle and investors will now look for news on an upcoming trial date, and their ability to fund their lawsuit If the ParkerVision model is any guide, many investors with an interest in intellectual property will be following developments closely.

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