Wi-Lan court loss raises concern about future

Business model suffers a blow

A California court ruling that

Apple Inc.’ s iPhones and iPads do not infringe on two patents owned by Wi-Lan

Inc. raises questions about the Ottawa-based technology licensor’s business model.

“In our opinion this is yet another blow to Wi-LAN,” said Eyal Ofir, an analyst at Clarus Securities Inc. “We remain concerned with the company’s ability to execute in courtroom battles against companies such as Apple.”

Wi-Lan’s business model is based on acquiring intellectual property and then sitting on the patents until other companies make use of the technology, at which point it charges them to use it or take them to court.

Wi-Lan’s shares plunged almost 10% after the ruling to close Thursday at $3.54.

The ruling follows another Wi-Lan’s loss last year in a jury trial in Texas that sought US$248-million in royalties from Apple for violation of a different patent. That loss led to a 23% plunge in Wi-Lan’s stock at the time.

Mr. Ofir downgraded WiLan to a sell rating with a 12-month price target of $3.50 a share.

“We anticipate stronger revenue and earnings that could be a point of stability for the stock, but without stronger execution in court we have longer term concerns about the company’s ability to grow revenue even with the current revenue diversification strategy,” he said.

Wi-Lan said it is currently reviewing the ruling. The company still has five other LTE patent infringement claims against Apple awaiting verdict in the same court.

The claims are part of litigation originally launched against Apple, HTC Corp. and Sierra Wireless Inc. in December 2012, though the latter two companies each settled the dispute with licensing deals.

Wednesday’s court ruling was a blow to the company’s stock, but analysts at Cantor Fitzgerald pointed out that any possible licensing agreement with Apple would not have been worth much even if Wi- Lan had won.

“There is no impact to our estimates from this judgment as we had not factored in any contribution from a positive outcome with Apple in our 2014 or 2015 revenue estimates,” they said.

“In terms of materiality, a license agreement with Apple was widely believed to be in the $10mns, a fraction of the $825mn-$1,125mn in lifetime revenue that Wi-LAN estimates that its current portfolio of patents will generate.”