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Nuke John's  Instablog

I have been a technology investor for over twenty years. My investing style includes a combination of Fundamental Analysis with Technical Analysis used for entry and exit points. I follow several stocks involved in patent litigations including Rambus, TIVO and Tessera. I follow the actual... More
  • Stay Ruling Favors Tessera
    The Federal Circuit just denied the stay requested by Qualcomm, Freescale, Spansion, ST Micro and ATI.   The Limited Exclusion Order and the Cease & Desist orders of the International Trade Commission are now in effect....and the parties will not be allowed to import their infringing products into the US.   Since this is a Limited Exclusion Order instead of a General Exclusion Order, products that are used to make end products are not subject to this order (these downstream products are still allowed in the US).    However, we are starting to see the effect of companies who are losing business because of the LEO and the Cease and Desist order.   Here is one article that explains the pain some customers are facing.

    Tessera has just announced that they will be ringing the bell to open the NASDAQ and that they will have an Analyst Day on September 17th.   Frequently companies will schedule these Analyst Days when they have some significant to tell the markets.   Since this event had to have been scheduled before the Federal Circuit made a favorable ruling on the stay, I suspect they may have some more good news.   They may have an announcment of new licensees for their uPILR or Ionic Cooling technologies.   Or, they may have an announcement on a new licensee for their wafer level camera modules and optics IP.   But what could really get the stock moving would be a settlement with one of the parties in the wireless ITC action (Qualcomm, ST Micro, Freescale, Spansion, and ATI).   Now that the stay has been denied, the Cease and Desist orders and the Limited Exclusion Orders will be having major impacts on these companies.    Every day that goes by without being able to ship key parts within the US is hurting revenues and alienating their customers.

    I think we will get some good news on September 17th (if not before).   Just how good that news will be is yet to be determined.   Stay tuned and watch the stock price.

    Disclosure:   Long TSRA

     
    Tags: TSRA
    Sep 10 05:24 pm | Link | 1 Comment
  • Rambus Litigation Update: The Price Fixing Case Goes Forward
     
    On Friday, Rambus jumped over 12% on a day when the NASDAQ was down 24 points.    What’s going on?    The simple answer to that question is that Rambus cleared the final hurdle in their Price Fixing Antitrust Case against the DRAM Price Fixing Cartel.   On Thursday August 13th after the market closed, the Dram Cartel lost their 5th and final emergency writ at the California Appeals Court, and Reuters published an article that revealed the damages at stake are more than 12 Billion dollars. The investment world finally knows that the case is starting in September and there is a high probability of settlements now that the DRAM cartel realizes they will have to face the music.
     
    What could happen over the next few days or weeks?    We could see a run in Rambus like we did in January of 06, when Rambus went from 16 to 36 in 11 trading days.   Of course that was nothing compared to February of 2000 when Rambus went from 19 to 111 in 22 trading days.
     
    I would argue that Rambus is in ten times better shape now than in January of 06.
     Why do I think they are in better shape?   What has happened since 2006 that puts Rambus in better shape now? 

    Here are 12 things that have happened in the past three years that will soon allow Rambus to have a similar run to what they had in 2000.
     
    1.   Rambus won the appeal of the FTC ruling at the CADC and the Supreme Court handed Rambus a win by refusing to hear the case.
    2.   The FTC dropped the case and whimpered off with their tail between their legs.
    3.   Rambus won the spoliation case in the Northern District of CA (Judge Whyte ruled they did not spoliate documents).
    4.   Rambus won the patent infringement case against Hynix.   Rambus’ Farmwald & Horowitz  patents have been ruled valid and infringed by the most thorough District Court Judge in the country, Judge Ronald Whyte.
    5.   Hynix has had to put post a 250 Million bond and give Rambus a lien on another 150 million in property (valued at least 300 million) and they have to put a 4.25% compulsory royalty (on their US Sales) in escrow while they appeal the Northern District of California verdict to the CAFC.
    6.   Rambus has had over 58% of their claims validated by the USPTO in Reexam challenges, and they are still challenging those where they lost.  These reexams last years and the AT Case and the Appeals at the Federal Circuit will be finished long before any negative decisions at the USPTO will be ruled on by the Board of Patent Appeals and Interferences.
    7.  Rambus has reached a tentative agreement with the European Union and final arrangements could be announced at any time.
    8.  Rambus has announced the Mobile Memory Initiative and has announced five new technologies they have invented that the industry needs to put in the next standard (DDR4).
    9.  The Price Fixing Case (AT Case) against the DRAM manufacturers (who have already admitted guilt to the USDOJ paid >850 Million in fines) starts next month.
    10   Damages in the AT case are 4.832 Billion subject to automatic trebling to over 13 Billion Dollars (ie. Rambus gets $120/share in damages from a CA jury).
    11. Rambus has defeated all attempts to stop the Price Fixing Case (AT Case).   The CA Appeals Court just denied the last of five writs.
    12. The Rambus case against Nvidia at the International Trade Commission is proceeding to trial in mid October.   The Claims Construction ruling went almost 100% in Rambus’ favor.
     
    After over ten years of having to play defense, defend the validity of their patents, and defend against charges of spoliation and of being a patent troll, Rambus finally has the leverage to pursue justice in the Price Fixing AT Case.    Rambus finally gets to play offense.
     
    For a summary of what has happened over the past ten years to Rambus, check out the Rambus Story on Rambus.org and for a nice summary on the Price Fixing Antitrust Case, see this story at currinresearch.com.   Also, for more details and many other links about the Rambus story, please see my previous Seeking Alpha articles on Rambus.
     
    I could easily foresee Rambus' stock price repeating what it did in January of 2006....only this time Rambus has the leverage to achieve settlements.   A settlement with the DRAM cartel could easily get the stock into triple digits.   Are we staring at a stock that could have Qualcomm price explosion?

    Disclosure:   Long Rambus
     
    Tags: RMBS
    Aug 16 03:00 pm | Link | 10 Comments
  • TiVo Legal Update

     

    What’s happening with TiVo in the ongoing court saga against Echostar?   Why did the stock go up twenty cents and trade 70% of its daily volume in the last hour of trading today?   Before I attempt to answer these questions, let’s review what’s happened since TiVo won a major victory over Dish/Echostar on June 2nd, which included Hon. Judge Folsom finding Echostar guilty of contempt.
     
    When TiVo (TIVO) won their recent case in the Eastern District of Texas, the stock jumped from $6.98 close on June 2nd to a close of $10.70 on June 3rd.   From there it proceeded to rise to a high of $11.62 on June 11th, but as the markets began to fall back in late June, and facing the possibility of an appeal being granted, TiVo’s stock price dropped back and fluctuated between 10 and 11 during late June.   On July 1st in afterhours, the Court of Appeals of the Federal Circuit (CAFC) granted the stay of the injunction requested by Echostar/Dish while they appeal the EDTX ruling. This was a major win for Echostar/Dish because it meant they didn’t have to immediately comply with the injunction and shut down the DVR’s that violated TiVo’s IP. 
     
    When the CAFC granted the stay on July 1st, TiVo’s stock dropped to $9.09 and continued dropping to a low of $8.50 on July 8th. Many TiVo retail longs were thoroughly disgusted, as the acceptance of this appeal gave Dish/Echostar another temporary reprieve.   The CAFC set a briefing schedule that stretched into September and they tentatively scheduled the oral arguments in November. This is an expedited schedule for the CAFC, as typically these appeals last 14-18 months, and sometimes even longer.
     
    But, while this stay was granted, the Eastern District of Texas Court was still plowing ahead. Hon. Judge David Folsom had ordered that the post verdict damages and sanctions for Echostar would be briefed and a hearing would be held on July 28th.   Many TiVo investors thought that this sanctions hearing was stayed along with the rest of the case while the appeal proceeded at the CAFC. It was my belief that this sanctions briefing cycle and hearing would go on as scheduled in Texas on July 28th.  Why does it really matter?  It matters because the potential damages of this phase are another billion dollars on top of over 200 million that TiVo has been awarded.    This really increases the stakes for Dish/Echostar, because if they don’t feel sure they can win the appeal, they could risk losing a fortune during the appeal process.
     
    TiVo had already received $73 million plus interest from the verdict in 2006, and Judge Folsom awarded another $103 million for damages between September 8,2006 and April 18, 2008.   This ruling can be found in docket # 931 on Mainer’s Law Library site.    But no one was sure how much the additional post verdict damages might be for the continued infringement and for the contempt citation.   My estimate was that TiVo might be asking somewhere between 700 Million and 1.5 Billion for the post April 2008 damages and for contempt sanctions.   Craig Moffatt, a Sanford Bernstein analyst who has followed this case was quoted in this article as saying,
     
    If Dish loses a current round of contempt litigation related to their alleged ‘work around,’ then the costs to Dish of disabling DVRs, settling with TiVo, or—worst of all—potentially engaging in a bidding war for the right to continue offering DVRs at all, could be in a worst case scenario in the billions… far higher than currently contemplated.
     
    Moffet was quoted in another article saying the court's ruling against Dish “was indistinguishable from a worst-case scenario.”  He noted that additional punitive damages could put the amount Dish is ordered to pay TiVo even higher, and “could potentially even include the disgorgement of profits earned during the period of April 2008 to the present.”
     
    The opening TiVo brief on the sanctions damages was sealed, so we don’t know the specifics of the damages TiVo has requested in the July 28th sanctions hearing.  However, we do now know that indeed they have asked for damages of approximately 1 Billion dollars in contempt sanctions alone.    How do we know this?   Echostar themselves let this tidbit of information out in a recent brief (entry # 963) on Mainer’s Law Library .   When you add post verdict damages for continued infringement (which will likely be deemed “willful infringement”) the total damages at stake in the July 28th hearing could be over 1.3 billion dollars.
     
    This huge amount of potential damages changes the settlement dynamics.   While Dish was certainly willing to pay 100 million here, or 100 million there in order to keep the case going and keep the appeals process in motion, now we are talking about an amount of over 1 Billion dollars.    Furthermore, the damages may continue to accumulate at a huge rate during the appeals process, and should Dish lose, the total could be staggering.
     
    Judge Folsom seems intent on keeping this sanctions hearing on track, and the approach he used almost assures us that the CAFC won’t try to stop him (if asked).    Judge Folsom issued his ruling today on PACER (Public Access to Court Electronic Records) and investors discovered this shortly before 3:00 PM Eastern time today.   The ruling reveals that he plans to proceed as scheduled and finish his sanctions hearing, but that he will stay the result pending review by the CAFC.    This allows the CAFC to have a full and complete record, and in my opinion, virtually eliminates any possibility that the CAFC will stay this sanctions hearing (if asked to do so by Dish).   The CAFC would like to have everything in front of them (for judicial economy) when they decide the case.  
     
    It’s worth reviewing what Standard and Poor’s ratings services said about Dish’s credit rating on June 10th.(bold highlights are mine). 
     
    06/10/2009 08:05:09 PM EDT
    Communications Daily
    Standard & Poor's Ratings Services said there's...
    Standard & Poor's Ratings Services said there's no immediate effect on its rating of Dish Network following the satellite-TV company's most recent loss in court to TiVo over DVR technology patents (CD June 4 p6). With nearly $1.2 billion in cash and marketable securities and very moderate leverage for the current 'BB-' rating, Dish could easily fund the $103 million of new judgments and penalties without a ratings impact, it said. However, the longer term effect on the company's credit profile would depend on the strategic path Dish takes to resolve the DVR issues, S&P said. If Dish were to enter into a licensing arrangement with TiVo, which S&P said was the most likely scenario, there would be no effect on Dish's BB- corporate credit rating, it said.
     
    Although Dish has resisted all settlement opportunities up until this time, it appears that things could get much worse for Dish if they don’t settle before the July 28th sanctions hearing. From the way Judge Folsom worded his order, it appears that he intends to issue his sanction ruling very soon after the hearing on July 28th so the CAFC will have everything they need to handle the case.
    TiVo is now profitable on a cash flow basis and they have $200 million in the bank.   A settlement with Dish should be worth somewhere between $500 and $800 Million in damages (my estimate),  plus it should provide a nice steady on-going royalty stream.    Once Dish settles, the TiVo patents will be valid and infringed and TiVo can pursue royalties from other cable companies that infringe.   It remains to be seen what the final settlement rates might be, but 2.00/mo per DVR seems to be a very conservative estimate.
     
    In case you are wondering how many DVR’s there are installed in the world and the US, this web site seems to have the best data I have come across. Although DirecTV and Comcast already have “preferred rate” deals with TiVo, those contracts will expire some day. But the other cable companies, such as Adelphia, CableVision, Charter Communications, Mediacom, Cox, and Time Warner will all soon be faced with licensing TiVo for their DVR’s.    
     
    Disclosure: Long TIVO
     
    Tags: TIVO, DISH
    Jul 14 09:13 pm | Link | Comment!
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