While Vringo Shares Soar on Lawsuit Speculation Zecotek Shares Offer Larger Upside
By:
AllPennyStocks.com News
Wednesday, October 24, 2012
Patent lawsuits are swirling around the stock market world today as innovative industry leaders look to quench the thirst of consumers and manufacturers for the latest and greatest products or technologies. Simply, a patent is a government-granted monopoly to an invention granted to the owner who files first claims on the invention with respective patent offices. Unfortunately for many, there can be only one holder of the intellectual property and if another company tries and rip-it-off, it can cost dearly. Just ask Samsung.
In August Apple, Inc.
(Nasdaq:AAPL) scored a victory over Samsung when a U.S. jury found Samsung had duplicated important features of Apple’s widely-popular iPhone and iPad, primarily in Samsung’s Galaxy line of products. The jury awarded $1.05 billion in damages to Apple, but Samsung is, of course appealing and says they will fight the case to the end.
The $220-billion dollar smartphone industry, patent infringement cases are everywhere. Apple is involved in several, including a battle with Google (Nasdaq:GOOG) , whose increasingly popular Android software is tapping into the pockets of Apple.
Vringo Inc. (AMEX:VRNG) , a once virtually no-name Amex-listed company, is now fully in the spotlight and seeing shares appreciate in part because of its litany of lawsuits to major players related to its assertion of patents. The New York City-based mobile software company is suing Google for allegedly infringing upon its patents by using the Lang/Kosak Relevancy Filtering Technology in developing "Quality Scores" to filter advertisements. Although the media has made the lawsuit all about Vringo versus Google, AOL, Inc. (NYSE:AOL) is also named in the lawsuit for infringing on Vringo's patents in its advertising.com ad placements. AOL, Target (NYSE:TGT) , InterActive Corp. (Nasdaq:IACI) and Gannett (NYSE:GCI) are also named in the case for infringement for utilizing Google’s ad system. InterActive is also named for directly infringing upon Vringo patents related to the Lang/Kosak technology in its ask.com platform.
Vringo claims it is owed royalties of a minimum of $500 million, but their corporate lawyer believes that evidence may push the damages in excess of $1 billion.
Let’s see…who else? Microsoft (Nasdaq:MSFT) is suing Google in Germany. TiVo, Inc. (Nasdaq:TIVO) believes it may be due billions of dollars in damages should it win its patent-infringement lawsuit against Google’s Motorola Mobility unit related to digital-video recording technology.
While many of those behemoth companies are not going to see much change in valuation because of a lawsuit that is only a tiny fraction of the net sales, it is notable the rise in value in Vringo with the possibility of winning its claims. Shares of VRNG are up from lows of 68 cents early in 2012 to around $4 per share currently with a recent high of $5.73 earlier in October. Not a bad return for investors hanging their hats on the jury’s ruling and awarded damages (not to mention future revenue for Vringo).
What many people are watching for is the court’s ruling to further define precedents for future lawsuits that are inevitably coming. Precedents are the gold standard in gauging the likelihood of winning a case.
For this reason, the future looks bright for Zecotek Photonics Inc. (TSX-Venture:ZMS) , a little-known British Columbia-based company with a powerful IP portfolio of more than 50 patents covering high-performance crystals, photo detectors, medical lasers, optical imaging and 3D display technologies for commercial applications in the medical diagnostics and high-tech industry.
The diversified company has upside on many verticals based on its own merit, but for the purpose of this exercise, it’s impossible to overlook its lawsuit with France-based Saint-Gobain SA, Europe’s biggest supplier of building materials and a key supplier of scintillation crystals to companies such as Royal Philips Electronics (NYSE:PHG) that are used in positron emission tomography (PET) scanners. Typically, a PET scanner contains 20,000 to 30,000 scintillation crystals, which accounts for more than a third of the manufacturers' total cost of the machine. PET scanners sell for about $2 million dollars.
Lawsuits against Saint-Gobain have already been established. In 2007 Siemens AG (NYSE:SI) , who makes its own crystals, sued Saint-Gobain for patent infringement on the composition of its crystals, claiming that they utilized their intellectual property in 61 PET machines. In what would be considered a small case, Siemens was awarded the victory and $44.9 million in damages. Importantly, all of Saint-Gobain’s appeals, including the final one before the U.S. Supreme Court, were found in favor of Siemens.
And this is where Saint-Gobain could be stuck paying again, only a much bigger penalty this time. Zecotek alleges that Saint-Gobain has also employed crystal technologies that infringe upon Zecotek’s US Patent No. 7,132,060. Phillips is also named in the case because we can only assume that Zecotek had informed Phillips of the patent infringement efforts of Saint-Gobain in PET scanners that they were selling at an earlier stage, but those warnings were most likely ignored. Based upon the ruling in the Siemens/Saint-Gobain case, Zecotek should see a larger settlement - much larger – potentially around $300 million including willful damages based upon the approximately $450,000 worth of crystals per machine that was awarded to Siemens. Extrapolating information from press releases by Phillips, the number of units containing the crystals for which Zecotek is alleging infringement totals about 300 machines.
It can be assumed that the companies were notified by Zecotek of patent infringement (as per Zecotek’s lawsuit documents) and we can only assume knowingly ignored the company, the door to damages is opened further because of what is called “willful infringement.” Willful infringement allots for additional damages up to three times reasonable royalties. Understanding the damage incurred by the upstart Zecotek with regard to sales and establishing itself as a major supplier of scintillation crystals could put damages near $500 million.
The figures aren’t exaggerated, the precedent is real and the case could reach a jury in the near term if the larger companies don’t scramble for a settlement beforehand. Yet, while a company like Vringo has seen shares soar about 700 percent higher because it is high-profile, Zecotek remains extremely undervalued when factoring in the near certain huge lawsuit win as shares only command 35 cents at the time of writing with a $25.5 million market capitalization. Due diligence on this lawsuit and Zecotek Photonics are strongly encouraged.
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