Four Patent Players to Watch Closely
Bill is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One can invest successfully in patents and intellectual property by identifying emerging technology trends, then finding the companies that hold core intellectual property (IP) rights associated with these growing markets. As an alternative, though, one could invest in companies that do this for you. Below, I will look at four companies in the patent industry to watch closely.
Boom or bust
Vringo (NASDAQ: VRNG) focuses on global acquisition, licensing, and protection of intellectual property and patents. Vringo uses the "boom or bust" strategy of acquiring one key patent and aggressively enforcing it against the biggest companies in the industry. While infringement damages may be in the hundreds of millions, if not billions, this model is speculative.
Shares of Vringo have averaged around its current price of $3.10. This is primarily because there has been little movement recently in terms of increasing its patent portfolio.
Slow and steady
Unlike Vringo, Acacia (NASDAQ: ACTG) uses a model of steady accumulation of patent portfolios spread across multiple industries. Acacia develops, licenses and acquires technology patents. Acacia stock is currently hovering around $22 and has a forward price-to-earnings ratio of 9.48.
Acacia recently reported adjusted earnings of $0.13 per share, a decrease of 69%, compared to $0.43 in the same quarter in 2012. Revenue dived 54.24% to $23.1 million from the same quarter in 2012. Wall Street had expected revenue of $66.98 million on earnings of $0.47 per share. A big reason for the missed expectations was the near doubling of litigation and licensing expenses to $9.9 million. According to Reuters, this stemmed from an increase in prosecution and enforcement costs, and an increase in third-party consulting fees related to new licensing and enforcement programs. Acacia took over seven new patent portfolios in the automotive, technology and energy sectors during the second quarter.
Regardless of the movement we see in the next few weeks, the company's stable business model makes it a good long-term buy.
A big newsmaker
Another company that uses a similar strategy of steady accumulation of patent portfolios across multiple industries is Spherix (NASDAQ: SPEX). Spherix recently announced an agreement to acquire 222 patents from North South Holdings that covers a wide range of growing industries. The Harris portfolio also has applicability in law enforcement communications, military and homeland security - in other words, where the money is at. Government spending in these categories is astronomical, followed closely by consumer spending in the mobile and telecommunications sector which, coincidentally, the company has signed a letter of intent with patent owners to acquire next quarter.
This relatively small company has been generating big news lately. Spherix recently announced a new deal with IP player Rockstar Consortium, with Spherix to take over a suite of Rockstar's patents. Spherix looks good for many reasons, but the future is all about North South Holdings Inc. and the future CEO, Anthony Hayes (expected August 2013). Back in January 2012, Mango Capital Inc. was barely trading. Hayes (co-founded Jansome IP), came in and ran a multi-million dollar patent fund, guiding 30% annual returns along the way. Hayes' expertise lies in consulting, patent price arbitrage, mass licensing and litigation.
Ready to strike
The final name I will mention in the list of patent players is VirnetX (NYSEMKT: VHC). Back in 2010, VirnetX filed an infringement lawsuit against Apple. In November 2012, a jury returned the verdict against Apple, awarding VirnetX damages of $368 million. Now the company has filed a case against Apple's more recent products such as the iPhone 5 and iPad 4. This case was split in two, with one case for past damages and one case for future royalty rate. Since then, VirnetX and Apple have failed to reach a licensing agreement, and the presiding judge in the case recently denied Apple’s motion to alter the final judgment.
This is important for VirnetX as it would be collecting revenues from more recent Apple products. A shot like that could truly make this company more competitive in the patent acquisition game. A ruling in VirnetX's favor with regard to the ongoing royalty rate could line the company's pockets with billions of dollars as well.
Currently, the company's stock is hovering around $18.60 with a market cap of $953 million. Investors should watch for case developments closely. I believe there is a good chance for gains here over the rest of 2013.
The companies featured above use solid and strategic models for positive returns. As markets emerge and technology evolves, this is truly an exciting time for patent and IP investments. Investors should use a variety of strategies to profit from these IP investments.
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Bill Edson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!