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Energy Recovery, Inc. Message Board

  • arvedarve arvedarve Dec 7, 2013 4:16 PM Flag

    Spectacular court victory for Isobarix and XPR technology

    After 4 weeks of trial, where ERII was seeking $ 13 mill. in damages, a unanimous California jury acquitted
    Isobarix and Leif Hauge last week of any misappropriation of trade secrets. This was an outcome neither desired or anticipated by Plaintiff and follows another setback in a related case in Virginia. ERII was awarded an injunction seeking to stop Mr. Hauge from manufacturing pressure exchangers last June, but 3 Judges found it unlikely that ERII would prevail and issued a Stay last September, while the case is pending for appeal at the Courts of Appeals. The litigation has revealed that ERI made a Settlement with the Founder in 2001 where he gave up his full 20 % ownership, but allowed him to own any future patents and compete after 2 years. Surely, this would have been information deserving disclosure in their IPO prospectus and apparently they disclosed many risks, but not the most obvious and potentially most harmful to ignorant investors. The lawsuits has also disclosed that ERII only have one patent with a 2 year remaining life protecting their sleeve based PX technology.

    What follows from these legal events is that ERII is much less interesting as an acquisition/investment object, while Isobarix seemingly appears to have more to offer in terms of solid IP rights to the far less costly, but equally performing XPR technology. It is more than likely we will see Isobarix being awarded a major contract within the next year and driving prices far below what ERII can offer and forcing them to rely more and more on their low margin pumps for revenue. The gas an oil diversification will not be of much help as XPR technology is equally fit for those and other applications. The strategy of using litigation as a way of getting competition out of the way, was perhaps tempting, but it backfired big time. Although 4th quarter 2013 may be cause for celebration, it is hard to see how their investors can continue shoring up current valuation.

    Sentiment: Strong Sell

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