The heated battle between Apple and Samsung over smartphone technology last year represented just one of the numerous patent infringement lawsuits taking place in courtrooms across America. In our litigious society, so-called "patent wars" between technology companies are playing out with increasing frequency. A 2012 infographic from Visual.ly, listing many of America's leading technology and consumer goods companies, shows just how tangled the patent litigation landscape has become.
With millions of dollars at stake in each case, the ongoing patent war can create strong profit opportunities for investors. Companies such as Vringo, Acacia, and VirnetX have made millions specializing in patent litigation. A ruling in favor of the patent holder can cause a significant upswing in the stock, as exemplified by Vringo (NYSE MKT: VRNG), up more than 100% over the past year; and ParkerVision (NasdaqCM: PRKR), up 300% over the past year. A jury awarded Vringo $30 million last year in its suit against Google, and ParkerVision recently received the go-ahead to proceed with its case against communications giant Qualcomm. Investors who built early positions in Vringo and ParkerVision reaped huge gains as the stocks skyrocketed.
One candidate to become the next big patent stock is Document Security Systems, Inc. (NYSE MKT: DSS). DSS is in the process of merging with Lexington Technology Group, a private company focused on patent monetization and commercialization. The merger, which is expected to close in spring 2013, will bring $7 million in cash, a strong IP portfolio, and a management team with a proven track record in patent monetization. Incoming CEO Jeff Ronaldi has realized more than $160 million in gains on $12 million in patent investments over the past two decades. He played an instrumental role in successful patent verdicts against Genzyme, Citrix Systems, and Microsoft, the latter resulting in a $60 million settlement.
Lexington's subsidiary, Bascom Research, is engaged in patent infringement suits against five defendants, including Facebook (NasdaqGS: FB) and LinkedIn (NYSE: LNKD). The suits allege that the defendants are violating key patents covering the manner in which users and application developers on social networks make connections between "objects" such as photos, people, events and pages. A key hearing in the case is set for October 2.
The value added by Lexington complements DSS' strong underlying business. DSS provides anti-counterfeiting and authentication technology to Fortune 500 companies and government agencies. Counterfeiting costs the global economy an estimated $1 trillion each year, and DSS' innovative technology portfolio provides a comprehensive solution with significant licensing opportunities. The Company is currently beta-testing AuthentiGuard, a suite of solutions that enable brand owners to identify counterfeits in real time by scanning products with their iPhones.
DSS currently trades in the $2 range, down from its 52-week high of $4.60. The merger with Lexington provides a huge near-term catalyst for the stock. A favorable court ruling or news of a settlement later this year could send the stock soaring, producing big gains for those who were savvy enough to invest at current prices. Don't miss out. To learn more about DSS, watch our interview with Jeff Ronaldi, the Company's incoming CEO.
Disclosure: The subject security is a client of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit http://www.redchip.com/disclosures.asp?src=rcv.