Bloomberg News

Wi-Lan Gains as U.S. Patent Rules No Threat: Corporate Canada

July 09, 2013

Wi-Lan Inc. (WIN), an Ottawa-based company that has used lawsuits to get companies to license its technology, is enjoying its biggest rally in two years as investors see little threat from President Barack Obama’s promise to rein in patent litigation.

Wi-Lan’s stock has gained 16 percent over the past three months, bolstered by a June agreement with Samsung Electronics Co. (005930) for technology used in the South Korean smartphone maker’s devices. The gain puts the stock behind only Open Text Corp. (OTC) and Celestica Inc. (CLS) in the S&P/TSX information-technology index. The shares jumped 11 percent on June 21 after the Samsung deal was announced, marking the largest one-day gain since 2011.

Wi-Lan depends in part on the threat of litigation to reach licensing deals. While Obama is seeking to stem patent suits against companies like Apple Inc., new rules could actually benefit Wi-Lan, said Robert Young, an analyst at Canaccord Genuity Corp. That’s because the regulations may dissuade other companies from trying to enforce lower-quality patents and clarify the rules on infringement.

“This is a company that had real technology that created a lot of value in the wireless communications sector,” Young said in an interview. “Any company that has really good patents and has invested a lot in developing and improving them over time is positioned to benefit, and I think Wi-Lan is one of those companies.”

Outside Courtrooms

The company also does much of its negotiating outside of a legal setting, said Michael Vladescu, chief operating officer.

More than 90 percent of Wi-Lan’s licensing deals didn’t require the company to sue for patent infringement, he said. Until yesterday, when a Texas court began hearing its infringement case against a group of companies including Alcatel-Lucent (ALU:US) over the 3GPP mobile-phone standard, the company had never gone to trial.

Obama’s measures probably won’t have a significant impact because the company’s patents cover “fundamental” technologies with many applications, Vladescu said.

“We approach our business in a very broad and comprehensive manner,” he said in an interview. “These kinds of changes that are being proposed have less of an impact on us.”

Dot-Com Bust

Founded in 1992, Wi-Lan originally developed and sold wireless-networking equipment such as modems. The company’s shares took a dive after the dot-com bust, losing 98 percent of their value from a high in 2000.

Since 2006, Wi-Lan has focused on licensing its portfolio of more than 3,000 patents, rather than making its own products. More than 265 companies license its intellectual property, including Cisco Systems Inc. (CSCO:US), Nokia Oyj and BlackBerry, according to Wi-Lan’s website.

The Samsung agreement covers long-term licensing for mobile phones, tablets, laptops and networking equipment. The deal adds “significantly greater patent scope,” Wi-Lan said when it announced the accord June 21. The company didn’t specify the terms or the length of the license.

With the Samsung pact, Wi-Lan is benefiting from the popularity of smartphones such as the Galaxy S series. Suwon, South Korea-based Samsung is the biggest user of Google Inc.’s Android operating system, which accounted for 75 percent of the global smartphone market in the first quarter, according to IDC.

Jennifer Groh, a Canada-based spokeswoman for Samsung, didn’t immediately reply to a phone call and e-mail seeking comment after normal business hours.

Idea Hijackers

Obama, meanwhile, is targeting companies that “hijack somebody else’s idea and see if they can extort some money” by suing companies for intellectual-property infringement, the president said earlier this year. Last month he issued a series of orders and legislative recommendations that would give courts more discretion in awarding fees, train examiners to spot overly broad claims, and protect consumers and businesses against claims on “off-the-shelf” products.

In announcing the patent reforms, the administration issued a report finding that 100,000 companies were threatened with infringement last year by patent-assertion entities -- companies whose sole business is to obtain patents and use them to obtain royalties from businesses that make or use products and services. Several pieces of legislation with similar aims are also working their way through Congress. One proposal would enable companies to recoup legal fees from patent owners who lose their lawsuits.

Vermont Case

In May, Vermont sued MPHJ Technology Investments -- a company that demanded royalties from hundreds of businesses for technology related to converting scanned documents into e-mail format -- for allegedly violating the state’s consumer-protection laws.

“You’ve got the states involved,” said Brad Barker, a Bloomberg Industries analyst in New York who tracks the effect of legislation on companies. “You’ve got the president and Democrats and Republicans in Congress all on the same page. It’s a pretty darn good gathering of forces lining up against these companies.”

Wi-Lan has other court hearings scheduled that may yield settlements. A trial against a group of businesses including Apple and Hewlett-Packard Co. is set to begin in October, the company said.

More than half of Wi-Lan’s patents have been stockpiled through acquisitions, and the company is expanding into other consumer segments, including digital-television displays, Vladescu said.

“It’s very much a scalable model,” he said.

To contact the reporter on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net; Nick Turner at nturner7@bloomberg.net


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Companies Mentioned

  • ALU
    (Alcatel-Lucent)
    • $3.35 USD
    • 0.08
    • 2.39%
  • CSCO
    (Cisco Systems Inc)
    • $26.88 USD
    • 0.07
    • 0.26%
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