Overland To Federal Court For Damage Award - ITC Solidifies Case

| About: Overland Storage, (OVRL)

In October 2010, Overland Storage (NASDAQ:OVRL) initiated a lawsuit against IBM (NYSE:IBM), Dell (NASDAQ:DELL), and BDT, accusing them of infringement of two patents. In December 2011, IBM and Dell settled, but BDT did not. In June of 2012, the ITC judge issued an initial determination that found that the alleged products infringed the '766 patent and also found both of the patents to be valid.

Last week, the ITC Commission ruled on the initial determination of the judge, overturning a couple of his findings and remanding certain issues back to the judge.

The legal process and rulings are very technical, and therefore difficult for the average investor to interpret. I believe that many investors are misinterpreting this latest ruling, such as this one.

To add some clarity, Susan Decker at Bloomberg interviewed Sean Cunningham at DLA Piper (Overland's attorneys). Here are the highlights from Sean:

* Non-infringement finding of '766 patent against BDT was under trade rules regarding importation, so OVRL can still pursue infringement claims in district court under patent law.

* ALJ's finding of direct infringement against Dell, IBM stands because commission didn't address that issue; both companies had settled with OVRL

* Direct infringement finding against Dell, IBM can help prove infringement against BDT in district court

* OVRL confident '766 patent will remain valid in remand review

* Changes to interpretation of '581 patent were beneficial to OVRL for civil suit

* Remand issues won't change finding of no violation of trade law by BDT

So, Overland's legal case is alive and well, and I think you will see settlements with the other defendants coming in over the next few quarters. What are they worth? $25 million? $50 million? $100 million? I don't know and neither does anyone else.

But the shame of all of this is that the lawsuits are taking center stage when they should be just a sideshow. In my opinion, Eric Kelly, CEO was brought in to turn this company around and sell it, not to pursue litigation. Eric has executed flawlessly, hitting every milestone on target for the past three years. The latest round of new products (Cloud/Scale-Out NAS) represents the culmination of his efforts and in my opinion will generate excellent revenues and profits for the company. With a roughly 10% ownership interest in the company, and no desire to run it over the long term, Eric has strong motivation to build it up and sell it.

A conservative valuation would put the tape business at 1x revenues and the new Cloud/Scale-Out NAS products at 2x-3x revenues (arguably higher). Using a modestly conservative estimate for 2013 sales, this puts the salable value of the company at $100 million - $150 million. The current market cap is about $40 million. So why are you worried about the value of the lawsuits?

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. My fund can trade OVRL at any time without restriction