The recent buzz was mainly due to speculations regarding settlement between MGT and the gaming companies against whom it has filed a lawsuit for patent infringement. As per the MGT management, the lawsuit is worth anywhere between $300 million and $4.5 billion. The range is large because the estimations are based on scenarios related to number of machines violating its patent (no. 7,892,088), the average revenues per machine and the percentage of royalty payable. Out of the companies against whom the lawsuit was filed, namely, Caesars Entertainment Corporation (NASDAQ GS:CZR), MGM Resorts International, Inc. (MGM), WMS Gaming, Inc. - a subsidiary of WMS Industries, Inc. (WMS), Penn National Gaming, Inc. (NASDAQ GS: PENN), and Aruze Gaming America, Inc., it was rumored that WMS was interested in settling the lawsuit. Since this is potentially a game changer for MGT, they have hired top lawyers experienced in such lawsuits. Of course, these top lawyers are paid highly and all calculations regarding damages, royalties etc. have to factor a significant percentage payable to them. Meanwhile, the stock has fallen below the 200 DMA and is now poised at crucial support levels. $3.30 is likely to be a good zone, and it is likely that it bounces even before that. This is because the stock had spent some time around these levels before breaking out to the current levels. The move above the 200 DMA was not convincing (lower volumes), and hence the reversal. But the move above the 50 DMA was with volumes and, therefore, that should hold. The Markman hearing will determine the future of the lawsuit and as that approaches, the stock is likely to remain active. A settlement before that would surely take the stock to much higher levels. An immediate inflow, or even a certain inflow over a period of time, albeit lower than the estimates, would remove the uncertainties associated with a long drawn trial.
Good post. What are your thoughts regarding the strength of MGT's patent, noting none of the defendants have challenged same since lawsuit. I would of thought by now, we would of heard defendants mentioning prior art, but nothing so far.
We've noted the SGMS $1.5B 60% premium offer for MGT's primary defendant WMS as a likely catalysts, given the Markman Hearing scheduled about the same time as the close of their offer. However, I see other defendants perhaps even more likely to make a deal with MGT.
CZR for example is nearly bankrupt and due to debt requirements, can't even sell anymore assets. They simply can't afford to take a hit from MGT's patent suit. MGM isn't in as dire straights as CZR, but not far behind. So either could make a move for MGT at any time.
PENN is, or close thereof, the strongest defendant financially and clearly in a very good position to buyout MGT's patent, or complete buyout offer.
The tier 1 law firm secured by MGT via contingency was brilliant to say the least and as a shareholder, reduces risk considerably.
This may not be the next VHC, but we could easily see the stock in the double digits later this year.
The patent was originally filed in 2001 and granted in 2011. In the intervening decade it was challenged many times by some of the biggest names in the gaming industry. Each of these challenges was unsuccessful. (I refer you to the USPTO website; you will find it to be a font of knowledge.) These unsuccessful challenges are what delayed the granting of the patent for so long.
As to the secondary defendants; with the exception of Aruze which is also a gaming manufacturer, I'm not sure what their level of liability truly is; aside from unjust enrichment. Casino operators (MGM, CZR, PENN, etc) have contracts with the manufacturers of their machines; be they sales, lease or revenue sharing agreements. All of these contracts have a Hold Harmless clause which will cover all legal expenses and/or judgements of the operator. As I see it, the casino operators have no real interest in negotiating a settlement or buyout. They will simply had the bill to the manufacturer who will promptly pay if they EVER want to put another machine on ANY of said operators properties again.
I think that MGT's legal strategy of suing the casino operators along with the manufacturers is a stroke of brilliance. It will (in time) provide significant pressure for the manufactures to negotiate. The casinos do not want to open their books in discovery and the manufacturers don't want to cause problems for their customers. It is simply another front in the same battle.