I have discussed Westport Innovations (WPRT) at length in my article "Bullish Case for Westport Innovations" and the macroeconomics behind natural gas as a primary fuel source within "The Case for Natural Gas Related Stocks".
Based on the number of times those articles have been read - there is quite a bit of interest relative to WPRT within the Seeking Alpha community.
So, I took it upon myself to dive a bit further into three important areas within WPRT's business model in a three part series. Part one detailed their "Strategic and Business Alliances", part two explained a "Capital Efficient Business Model" and part three is below.
Part 3 - "Intellectual Property Overview"
WPRT has an industry leading intellectual property position. This IP position gives them a competitive technological advantage over industry participants. The data below is from Westport Innovations (April 2012) and is graphically presented by RulingTheMarkets.com.
The company's research and development efforts have resulted in a substantial patent portfolio that serves as a technological differentiator and a foundation for what WPRT describes as its competitive advantage within the market place.
When I had the opportunity to discuss Westport's patent portfolio with company officials, I learned that the above information detailing 294 owned patents does not include the patents jointly held within any of their joint venture arrangements. This means Westport's "patent leadership role" is more significant than the above chart illustrates. It was also explained to me that Westport has the right to utilized patents held within the JV's, as do their partners.
Are Westport's' patents truly more valuable than others? Do they represent a long-term defendable intellectual property position that can benefit shareholders for years to come?
These are tough questions to answer. As time passes a clear winner will emerge. Perhaps a relevant parallel can be drawn with Google and Yahoo. In the beginning both were respected start-up companies but Google was able to differentiate itself through its patent portfolio and an ingenious way to rank web pages. As time has passed Google is without a doubt the clear winner. Yet the original technologies were very similar and hard to differentiate. Perhaps the 15-liter competition between Westport and Cummins (CMI) will play out similarly -- only time will tell.
Westport has first-mover advantage in a category that could reshape how we use fossil fuels. A firm can gain first mover advantage when it has some sort of breakthrough in its research and development, resulting in a direct breakthrough in technology. A learning curve can provide a sustainable cost advantage for the early entrant if the learning can be kept proprietary (HPDI is owned by WPRT) and the firm can maintain leadership in market share. This advantage results from the fact that the first entrant can gain control over resources (patents) that followers may not be able to match. Sometimes first-movers are rewarded with huge profit margins and a monopoly-like status.
All of this is hard to quantify now to answer the question - Is the technology worth a few million or a few billion? A clear answer is difficult to come up with, but Westport has the "structure" in place to have a significant impact on an enormous market segment, a defendable patent portfolio and key relationships with all the major players in the industry. In other words, the odds appear to be in Westport's favor, but only time will tell.
WPRT owners will need to watch the Cummins 15-liter developments closely and the competitive landscape within the industry.
Disclaimer: This work is based on public filings, public events, interviews, corporate press releases, and what I have learned as financial journalists. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.
Disclosure: I am long WPRT.