Beacon Asset Managers'  Instablog

While we would have to agree that IDCC is a textbook case (pardon the pun) in support of the Wall Street adage of avoiding stocks based on anticipating the outcome of litigation, we feel the need to point out that this legal outcome does not mark the end of IDCC as a valuable company with decent future growth prospects.  In short, while we are currently eating crow, we still feel that IDCC is a potential peacock in the making. 

The ruling does not end InterDigital’s efforts to get Nokia, or the other currently unlicensed companies, to pay for its patented technologies.  With regard to Nokia, IDCC has 12 days to petition the ITC for a “full commission” review of the ALJ’s initial determination.  The full commission then has 60 days to decide whether it will review the case.  If it decides to review the case, the commission would then be expected to issue a final determination by Dec. 14, 2009, which could uphold the ALJ’s initial determination, or reverse it and find that Nokia’s products did, in fact, infringe on IDCC’s patents.  Should the Commission either deny a review, or review and uphold the ALJ’s original findings, IDCC can then appeal the case to the U.S. Court of Appeals for the Federal Circuit.

In discussing the review process during a Monday afternoon conference call on the ruling, InterDigital CEO and President William J. Merritt said that in recent years the full commission has become “very active,” in reviewing initial findings, and pointed to the full commission’s recent overturning of the ALJ’s initial determination of no infringement in a case filed by Tessera Technologies (TSRA) against Motorola (MOT), Qualcomm (QCOM), Freescale (FSL) and other companies.  

Merritt said that the full commission only needs to find infringement on just one of numerous claims constructions for the four patents at the heart of the case for IDCC to essentially win its case.  He indicated that the adverse ruling by the ALJ does not put IDCC into a weaker position in any settlement negotiations, adding that the various legal maneuverings between the companies has made each sides position “more clear.”  He also suggested his company has plenty of ammunition to continue the fight, no matter what the legal arena.  Among this ammunition Merritt pointed to newly issued patents, with stronger claims construction, that cover the same technologies at issue in the current ITC case. 

Waiting in the wings of the final ITC outcome is litigation in the U.S. District Court system, in which both companies are arguing that the other company has engaged in false and misleading descriptions or representations regarding their respective Third Generation wireless patents.  While this litigation, which is currently stayed pending the final outcome of the ITC case, does not directly address the issue of infringement, it provides further impetus for the companies to reach a settlement.  

And while the InterDigital versus Nokia legal battles continue, the company is still making money, pulling in annual revenues of more than $260 million from the 50 percent of wireless manufacturers who have taken an Interdigital license.  With more than $5 per share in cash, virtually no debt, positive earnings and strong free cash flow, the company has the more than enough resources to go 12 rounds with Nokia if ultimately needed.

Disclosure: No Current Positions