Wi-Lan is finishing 2013 on a low note with seriously undervalued stock, successive quarters of high litigation fees, and a question mark looming over the company\u2019s recently announced strategic review.<\/p>\n
The Ottawa-based company makes money by buying patents and then licensing them to technology companies. If one of the patents in Wi-Lan\u2019s portfolio is used without a licensing agreement, the company then pursues litigation against the infringing party.<\/p>\n
Wi-Lan currently has a portfolio of over 3,000 patents that it licenses to 275 companies, said Tyler Burns, Wi-Lan\u2019s director of investor relations. These patents cover technology ranging from Wi-Fi connectivity to laptop and television displays, he said.<\/p>\n
By owning these patents and sharing the technology with the world, patent licensing companies have a monopoly on the knowledge, said Michael Salter, director of corporate communications for Ottawa patent licensing company Conversant, formerly Mosaid.<\/p>\n
\u201cThere\u2019s no secret sauce,\u201d he said on the knowledge sharing of patents. \u201cIf people want to use (the technology), they have to license your patent.\u201d<\/p>\n
Legal costs on the rise<\/strong><\/p>\n If a company neglects to sign a licensing agreement, Wi-Lan takes it to court. This had led to ballooning legal fees for Wi-Lan in 2013.<\/p>\n The company generally tries to pursue litigation in waves, meaning trials happen at once rather than being spread out, said Justin Kew, a Toronto-based analyst for investment bank Cantor Fitzgerald.<\/p>\n By grouping litigation, patent licensing companies are able to assemble similar evidence and cases and move them forward at the same rate, said Colin Ingram, an Ottawa-based lawyer and partner at intellectual property firm Smart & Biggar.<\/p>\n This tactic sometimes leads to smaller legal expenses than if a company were to litigate against each of the defendants separately, Ingram said.<\/p>\n Wi-Lan\u2019s most recent surge of courtroom activity included cases against Apple, Sony Ericsson, and HTC.<\/p>\n Losses in 2013<\/strong><\/p>\n Steep litigation fees from this wave of trials have contributed to the company\u2019s losses in 2013. Wi-Lan lost $20.5 million in the nine months ended Sept. 30, compared to losses of $12.4 million in the same period of 2012.<\/p>\n Revenues for the company in the nine-month period were $59 million, down from $66.8 million in 2012. While revenues slipped, the company\u2019s legal expenses skyrocketed. Wi-Lan spent $41.2 million in litigation fees in the first nine months of 2013, more than double its $16.8 in legal expenses in the same period of 2012.<\/p>\n Because most of the trials active during these quarters have ended or were settled out of court, Wi-Lan is expected to have lower litigation fees in future quarters, accompanying documents to the third quarter financial statements said.<\/p>\n Along with waves of high legal expenses, the danger with increased litigation is sometimes unpredictable courtroom results.<\/p>\n \u201cTo take an action to trial and leave it in the hands of a judge represents both a significant cost and a significant risk because at the end of the day, you may lose,\u201d Ingram said.<\/p>\n Caught in a coin flip<\/strong><\/p>\n The \u201ccoin flip\u201d of court decisions often leads to investor overreaction to both legal wins and losses, Kew said. This has affected the company\u2019s value in the stock market, he said.<\/p>\n \u201c(Wi-Lan) is finding that being a public vehicle is problematic in terms of maintaining good valuation,\u201d Kew said.<\/p>\n The recent Apple trial proves this. On Oct. 23, a Texas jury found that Apple hadn\u2019t infringed on a handset patent owned by Wi-Lan. On the morning of the trial, Wi-Lan stock opened at $4.19 on the Toronto Stock Exchange. The next morning, it opened at $3.05 \u2013 a decrease in value of more than 27 per cent.<\/p>\n This number is especially surprising given that Wi-Lan\u2019s share price based only on its cash assets and current contracted license agreements is $3.40, an Oct. 24 research update written by Kew said.<\/p>\n This price doesn\u2019t include the value of the company\u2019s patent portfolio or any potential renewals on contract agreements, Kew said in the research update.<\/p>\n A strategic review<\/strong><\/p>\n On Oct. 30, seven days after the Apple ruling, Wi-Lan issued a press release stating that the company would be undergoing a strategic review. In the press release, the company said it didn\u2019t believe that its current share price reflected the value of its assets.<\/p>\n The review isn\u2019t surprising considering the company\u2019s low stock price, Salter said.<\/p>\n \u201cThere\u2019s a certain point in time when you have an obligation to shareholders to try to increase the value of shares,\u201d he said. \u201cThey recognize that they have an issue with their share price, and they\u2019re putting in place a plan to try to crack that.\u201d<\/p>\n Wi-Lan is considering alternatives including \u201cchanges to the Company\u2019s dividend policy or other forms of return of capital to shareholders, the acquisition or disposition of assets, joint ventures, the sale of the Company, alternative operating models or continuing with the current business plan,\u201d it said in the Oct. 30 press release.<\/p>\n In terms of a potential sale, Kew said it\u2019s unclear whether a buyer will emerge or who that buyer would be. He said potential players could be Acacia Research Corporation, an American company that partners with patent holders, or Chicago-based Sterling Partners, which bought out patent licensing company Mosaid in 2011 after Mosaid rejected Wi-Lan\u2019s hostile takeover bid.<\/p>\n Cash on hand<\/strong><\/p>\n Kew believes that the company\u2019s large cash reserves suggest that a change in dividend policy is more likely than a sale, he said.<\/p>\n The company had US$142 million in cash at the end of the third quarter. Jim Skippen, Wi-Lan\u2019s CEO, has said that $100 million is a very comfortable number to have in the bank, and $50 million is the minimum needed to run the business, Kew said.<\/p>\n Because of this, Kew believes a dividend payout of $60 million, or around 50 cents a share, is within reason, he said.<\/p>\n The problem with a potential change in dividend policy is that it won\u2019t fix the underlying problem of Wi-Lan\u2019s \u201cseverely low\u201d market value, Kew said.<\/p>\n \u201cIt\u2019s a situation that clearly doesn\u2019t make sense,\u201d he said. \u201cThe market isn\u2019t giving (Skippen) any credibility for his ongoing business.\u201d<\/p>\n To fix this, Skippen will need to demonstrate that he can win major cases and settle with big players in the technology industry, Kew said.<\/p>\n At the end of the day, Kew said he is sceptical that the strategic review will result in any changes at all.<\/p>\n \u201cI think there\u2019s a big likelihood that nothing happens,\u201d he said.<\/p>\n","protected":false},"excerpt":{"rendered":" Wi-Lan is finishing 2013 on a low note with seriously undervalued stock, successive quarters of high litigation fees, and a<\/p>\n","protected":false},"author":78,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[256],"tags":[274,275,272],"class_list":["post-3645","post","type-post","status-publish","format-standard","hentry","category-corporate-profiles-2013","tag-patent-litigation","tag-vanessa-king","tag-wi-lan"],"_links":{"self":[{"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/posts\/3645","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/users\/78"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3645"}],"version-history":[{"count":19,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/posts\/3645\/revisions"}],"predecessor-version":[{"id":4488,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/posts\/3645\/revisions\/4488"}],"wp:attachment":[{"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3645"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3645"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3645"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}