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Notice was given August 21 that the U.S. International Trade Commission has determined to review in part the final initial determination ("ID") issued by the presiding administrative law judge ("ALJ") on June 20, 2012. The ID had initially found no violation of section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1337, by BDT.

In 2010, Overland Storage (NASDAQ:OVRL) launched litigation against IBM (NYSE:IBM), Dell (NASDAQ:DELL) Inc., BDT AG, BDT-Solutions GmbH based in Germany and BDT Products. The complaint broadly claims infringement of BDT's products. IBM and Dell were named because they purchased the products that infringed on Overland's patents.

Overland Storage launched litigation against BDT AG and BDT-Solutions GmbH based in Germany and BDT products in Irvine, California. The complaint broadly claimed infringement by BDT's products and it specifically identified BDT's FlexStor II product line as infringing on Overland's Storage patents.

BDT is the largest tape provider in the world (60-80% of the market). OVRL claimed that BDT infringed on its patent and started selling equipment to (NYSE:HPQ). BDT won the contract with HP approximately five years ago by giving a discount with an identical product. The HP business represented 70% of Overland's revenue (approximately $150mm per year).

Overland is represented by DLA Piper (the largest law firm in the world), with the case taken 100% on contingency. The suit was filed with the ITC (International Trade Commission) where DLA is 9-for-9, winning every one of their cases.

Filing in the ITC instead of federal court is important because the ITC can stop shipments of products to U.S. tape customers any time during the process if BDT gets sanctioned for any reason.

In June of this year the ITC Court found Overland's patents valid. However, in my opinion, because of a settlement agreement between IBM and Overland Storage, BDT was not initially found liable for infringement. As indicated in the initial summary statement it has just been decided that the commission will review the decision by the ALJ.

Shawn Cunningham, the attorney for Overland Storage, along with the other 6 attorneys pursuing this action against BDT at DLA Piper, were successful in having the ITC Court review the ALJ's decision claiming no infringement. A few of the areas in question are listed below.

1. The Commission has determined to review the ALJ's final ID in part. Specifically, with respect to the '766 patent, the Commission has determined to review the ALJ's findings on contributory infringement, validity and patent exhaustion. With respect to the '581 patent, the Commission has determined to review the ALJ's construction of the claim term "linear array", and the ALJ's findings on infringement, validity, domestic industry and patent exhaustion. These were key issues that weakened Overland's case of infringement of the '766 patent.

2. The ALJ initially found that Overland did not prove that the BDT Respondents possessed the requisite knowledge that the acts of IBM and Dell constituted patent infringement. This was mentioned in the last conference call held by Overland Storage as a critical issue to be reexamined.

3. To the extent the IBM 3570, 7331, 7336 and 3494 documents qualify as printed publications under 35 U.S.C. §102, how does each document either alone or in combination with other prior art of record anticipate or render obvious the asserted claims of the '766 patent? Please specify what prior art, if any, allegedly combines with the respective IBM document(s) to render obvious the asserted claims, and why. We are particularly interested in how the respective IBM documents, either alone or in combination with other prior art, expressly or inherently disclose or suggest the features of "said controller is configured such that a subset of said plurality of media elements and a subset of said plurality of media element drives are available for read/write access by a first one of said plurality of host computers and are unavailable for read/write access by a second one of said plurality of host computers" in claim 1 and the "queuing" and "sequentially performing" steps in claim 2.

If the full commission decides in Overland's favor the following will result:

"In connection with the final disposition of this investigation, the Commission may issue an order that could result in the exclusion of the subject articles from entry into the United States, and/or issue one or more cease and desist orders that could result in the respondent being required to cease and desist from engaging in unfair acts in the importation and sale of such articles."

There will be some real fireworks on October 22 in the price of Overland Stock. If the court overturns the decision, the market cap of overland may increase substantially.

At $1.85 per share, Overland is currently selling at less than fire sale prices. With a $50 million market capitalization, at 50% of sales estimates for next year, there is little downside. We believe the company could easily be sold for triple the current market cap, and we would not be surprised if private equity offers have recently been made at these levels. The current technology, patents and client lists alone are worth double the current valuation, with no consideration for the new products, IBM and Dell settlements, and potential BDT and other awards.

Here's a rough but conservative approach to valuing the company. For the next two years, we expect $100-$140M in top line revenue per year. Conservatively estimating $20 million in value from the settlement from Dell/IBM, a $60 million settlement in the BDT litigation, and other settlements from six additional defendants resulting in over $100 Million in additional revenue. These cases are currently outstanding. Finally, if we assume the going concern is valued similar to peers, with multiples of 1x revenues for its tape business and 2x revenues for its cloud business, we get a stock price of over $8 per share.

Keep in mind that Overland will be a nice acquisition target long before all of their plans come to fruition, and that Eric Kelly knows how to buy and sell a company. In 2002, he and a group of investors purchased Snap Appliance for $10 million. Two years later he sold the company to Adaptec for $100 million. Then more recently, he bought it back for $3.9 million and is merging it into Overland to create the new products.

This is a case of a potentially huge win for shareholders with limited downside. If the cases are not successful, shareholders still have a storage company selling for (0.5x EV/FY12E revenue) in an industry that has seen several buyouts in the 2x-5x EV/Revs. It also has a solid management team and a history of growing the top line while cutting expenses.

Disclosure: I am long OVRL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. The fund and the fund's consulting clients can trade overland storage at any time

Source: Overland Storage Vs. BDT: Commission To Review Judge's Ruling