Atrua Technologies Files Countersuit Against AuthenTec

AuthenTec (AUTH), the world’s leading provider of fingerprint sensors and solutions, found itself on the other side of a recently filed patent infringement case against Atrua Technologies, a privately held company that also creates fingerprint sensors and solutions.

On May 18th, 2008, Atrua filed a countersuit against AuthenTec for infringement of Atrua’s patented technology and illegal interference with Atrua’s business.

The countersuit comes only a few months after AuthenTec filed their original patent infringement lawsuit against Atrua alleging that THEY (Atrua) infringe on some of AuthenTec’s patents…

Now this is starting to get ugly, and adds more distraction and potential costs just when AuthenTec won a summary judgment only a week ago against Atmel Corp. (ATML) in a similar patent protection case.

Not Another One

New Countersuit has “Distraction” Written All Over It

You won’t find a lick of news about this countersuit anywhere on AuthenTec’s website or press releases, but of course, why would they let anyone know and draw undue attention to the matter, right?

The good news in this case is that with both the original AuthenTec patent suit, and now the countersuit by Atrua, we might get a resolution to the matter quicker and put a definitive ruling out there with which to work by.

In the press release, Anthony Gioeli the CEO of Atrua stated:

In addition to conducting our own thorough review of Authentec’s allegations against us, legal counsel and customers have now carefully reviewed the asserted patents and concluded that there is no merit to Authentec’s suit.

In the midst of this review, however, it became apparent that Authentec’s fingerprint solutions violate a key patent of Atrua’s. To protect our patented technology, we filed a countersuit against AuthenTec to stop its infringement of our patent.

Who The Heck is Atrua Anyway?

Well, there isn’t much public information on Atrua since they are still a private company. However, according to their own sources, Atrua has a portfolio of over 40 pending or granted patents related to fingerprint sensors and the related sensing technology.

In addition, Atrua claims that they have developed a “novel, open-standards-based approach to fingerprint sensing that accurately recognizes fingerprints across a broad range of finger types and environmental conditions, while taking less space on the phone and consuming less battery power than competitor’s solutions.”

Notice they didn’t say PATENTED approach! Remember, AuthenTec is still the only fingerprint sensor company with a patent for verifying a person’s fingerprint using the layer below the skin’s surface, which virtually eliminates the need of having a fingerprint! No one else has this, and was one of the strong reasons for investing in AuthenTec.

As you can see from the image on the left, Atrua indeed already has a small sensor that looks to be even smaller than anything AuthenTec has out on the marketplace yet.

In addition, Atrua’s sensors are ONLY for the wireless market, and not being developed for PC’s, or the Access Control market like AuthenTec. They are basically going for the niche of cell phone manufacturers and it appears from what Atrua says on their website, and in their press releases, that they are doing rather well.

In fact, Atrua claims to have an 80% share of all new fingerprint phone design wins announced since the beginning of 2007.

This could mean that they are going to start seriously eating into AuthenTec’s market share as things move forward.

Bottom Line

With AuthenTec winning last week’s summary judgement against Atmel Corp., it appeared that perhaps we would clear these legal hurdles cleanly and without much impact in terms of cost or management distraction.

With Atrua filing their counterclaim against AuthenTec, that has changed.

This case now becomes a more serious matter in that Atrua could garner a court win that might also call for an injunction on AuthenTec’s current products, and would severely cripple AuthenTec.

It’s way too early to tell what’s going to happen, and I want to get management’s take on the situation (we’ll probably have to wait till their next earnings call), and see how this plays out before reacting one way or another.

One thing is for certain: The plot has thickened over at AuthenTec, and not in a good way.