Go to investor village......VHC board. Look up Gilford Securities (about 10 am this morning) Great Read Ill attempt to post a link
Investors Should Remain Long VirnetX Despite Trial Outcome With Cisco
By Tom Shaughnessy - March 15, 2013 | 0 Comments
Tom is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
VirnetX (VHC) has encountered disappointing news yesterday when it lost a long run patent infringement case against Cisco (CSCO) in the Eastern District of Texas. VHC's the stock went down almost 27% after the news broke and down again nearly 8% the following day. Questions have surfaced asking if this event warrants a near $600 million decrease in the market capitalization of the company. It is my opinion that investors should put the event into perspective for a better view. I maintain my long position in VHC and it would benefit investors to take advantage of the low price per share. My bullish sentiment regarding VirnetX's recent events and why investors should remain long will be explained in this article.
Lets Put It All In Perspective: Investing in The Future
The outcome of the case with Cisco will not damage the future of VirnetX. Rest assured that VrinetX can and will file post-trial motions asking the judge to overturn the jury's decision. Cisco was being sued for $258 million by VirnetX, with Cisco arguing that $6 million in damages was an acceptable amount. With a midpoint of the two estimates around $125 million, the recent market cap loss of $600 million or more than 4x the mid estimate is exaggerated. I expect the share price to fluctuate in the near term as a result although VirnetX's future business model remains in tact. The outcome of the Cisco trial does not affect the state of VirnetX's patents, the confirmations by the USTPO or VirnetX's plans for Gabriel connection technology, Secure Domain Services or 4G LTE-A licensing. VirnetX is key to the future of 4G LTE-A, and Cisco is a small fry in regards to VirnetX's future revenue. Also, finding the patents invalid would be terrible, although the jury found the asserted claims of the '504, '211 and '135 paten. Litigation is the means by which VirnetX asserts its ownership over technology that other companies use freely and the downfall is that litigation carrys risk. VirnetX hold the keys to securing real time communications over the internet. The main focus of investing in VirnetX should be on the future of the company, plain and simple.
4G LTE-A and Some Math
The recent loss against Cisco hurts for investors in VirnetX. Investors should be reminded that the case revolved around past infringement. This case does not exclude companies from licensing with VirnetX in regards to 4G LTE-A technology in the future. VirnetX's secure sip technology has been adopted into 3GPP Release 10 standards, so every player in this market will eventually have to come back and license with VirnetX for 4G LTE-A or face willful infringement.
In trading it was surprising that the stock did not trigger a halt on the way down. Looking at the comprehensive white paper written by Justin Moreno, reducing the Cisco damages award to $0 only reduces the price per share estimate from $132 to $130.30. Making the already $12 reduction in share price ridiculous and unwarranted. This 1.3% future share price estimate reduction does not warrant the recent collapse in the share price. Because of this explanation of the estimate reduction, coupled with the way more important areas of VirnetX's business such as 4G LTE-A licensing, Gabriel Connection technology, Secure Domain Services and the huge victory against Apple, Microsoft and settlements with Nec, Siemens and Astra; investors should remain long VirnetX.
The Focus Is Still Is On Apple
VirnetX's case against Apple (AAPL) was monumental and should not be easily forgotten. VirnetX won a $368 million dollar award against Apple for past infringement last November. VirnetX is receiving more than $330,000 per day until a settlement is reached regarding an ongoing royalty rate. If a rate is not reached, VirnetX will file a motion to the judge who will likely set the rate. This award with Apple like the settlement with Microsoft (MSFT) and settlements with various other companies compounds the strength of VirnetX's patents in addition to the monetary awards. The jury in the Apple case found every asserted claim of VirnetX's patents valid. The Apple verdict granted another round of defense for VirnetX's patents. Apple is a major player in VirnetX's world and Cisco was not as shown by the new price per share estimate. This ruling in no way reverses the Apple decision and the clock is still ticking on Apple's post judgment damages as they discuss an ongoing royalty rate. Moreover, VirnetX has filed another case against Apple regarding infringement of newer products such as the Iphone 5 and Ipad Mini. Check out my article regarding the Judge's order in the Apple case here.
Valid But Not Infringed
It is a disappointment for VirnetX's investors that the case against Cisco was lost over infringement. Sources told us that the jury found the patents valid, but not infringed. This is key, since VirnetX will be making the bulk of their money from future licensing opportunities and their patents being found valid again is another round of protection for the company's patents. It is my opinion and various experts that Cisco infringed upon VirnetX's patents just the same way other unified connections companies such as Nec, Mitel, and Siemens has in the past. The reason the latter three settled is because they were aware they infringed and they settled to avoid a costly lawsuit. Is is a huge disappointment Cisco's lawyers were able to sway the jury, but investors should keep their focus on the long term.
A Call To VirnetX
During a recent phone call with Mr. Greg Wood, he stated the facts as they are known to the market. These facts include the jury finding the patents as valid but not infringed upon is an enormous triumph, thus strengthening the patent portfolio even more. Mr. Wood went on to say that Kendall Larson's belief is in line with long term dedicated investors, and that "more than 90% of VirnetX's future revenue will come from licensing in the 4G markets". Every lawsuit brings with it the risk of defeat yet investment focus should shift back to VirnetX's strong future.
The future of VirnetX as a company remains strong. The USTPO has denied a request by Apple and Cisco to accelerate and realign aspects of the companies' patents in recent news as well. Investors should remember that Apple and Microsoft have lost their patent infringement cases against VirnetX, and Mitel, Nec and Siemens (SI) have all settled. Of course people will bash a stock with a bad news headline, although this article is meant for investors not bashers or traders. Although this bump in the road hurts the car, remember where your destination is, not that your car hit a speed bump.