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My Focus: Impact of Patent Related News

|Includes:Asure Software, Inc. (ASUR), AZN, FORG, HSP, PRGO, RMBS, SNY, TIVO

[Originally written in July 2010]

I'm a law professor that specializes in patents and have for some time now been interested in the effect patent related news has on stock prices.  My interest in this topic was first peaked in February 2006 when the non-profit patent reform organization I direct challenged a patent held by ASUR (formerly FORG) relating to the JPEG digital image format.  On Feb. 2, 2006, we announced that our challenge had been accepted by the Patent Office and the stock dropped 40% over two trading days (from 3.12 open on Feb. 2, 2006, to a 1.75 close on Feb. 3, 2006) on volume that was 5-8 times average.  That event was humbling, and eye opening.  It also provided some humor, as we got much hate mail and a few nasty voicemails from FORG investors.

As another, more recent, example of the effect patent news can have on a stock, TIVO jumped 60% on March 4 when it received a favorable appellate court ruling in its patent dispute with Echostar and Dish Network and then dropped back down 42% on May 14 when that same court decided to rescind the March 4 decision and rehear the case from scratch later this fall.  There are plenty more examples, such as RMBS, down 17% on June 9 when the patent appeals court announced a rehearing of its cases against Micron and Hynix.

But tech companies aren't the only ones susceptible to this phenomenon.  Pharmaceutical and biotech companies can also be dramatically and immediately impacted by patent related news.  AstraZeneca jumped 7.5% to a new three-year high on June 30 after a district court ruling upheld AZN's patent on its $4.5B/year drug Crestor.  Right now I'm anticipating a decision from a Delaware court that held a trial last fall in which Hospira and Apotex seek to bust Aventis/Sanofi's patents on the $2.8B/year blockbuster cancer drug, Taxotere.  I'm also expecting an appellate court decision in Perrigo's bid to make generic Musinex by September/October.

In addition to simply reporting on these events and helping readers dissect them after the fact, I also hope to identify pending cases, like the HSP/SNY Taxotere trial and PRGO, TIVO and RMBS appeals, and give some thoughts about how one can analyze the likelihood of one side or the other coming out victorious and, additionally, how those outcomes could affect the underlying stock prices of the companies involved.  I don't mean to give direct investing advice, and people will surely get no more than they pay for when reading my _free_ posts, but since most people are vastly unfamiliar with patent legal issues, adding some thoughts will hopefully be a productive and entertaining step forward.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.