Market Overview

Is InterDigital the Only Patent Play Left?

InterDigital, Inc. (NASDAQ: IDCC) is spiking today more than 5% on rumors that the company could potentially be acquired as companies like Google (NASDAQ: GOOG), Qualcomm (NASDAQ: QCOM), Apple (NASDAQ: AAPL) and others look to beef up their patent portfolios.

Back in July, Apple, along with Research in Motion (NASDAQ: RIMM), Microsoft (NASDAQ: MSFT), EMC (NYSE: EMC) and Sony (NYSE: SNE) all purchased patents from a bankrupt Nortel to the tune of $4.5 billion. Nortel had a vast amount of patents, and the consortium won in an auction against Google, which did not take the auction serious.

Google then decided to go out and buy Motorola Mobility (NYSE: MMI), and effectively, start a patent war.

As the demand for smartphones, tablets continues to soar, these companies are suing each other trying to stop the other from making their products. Samsung and Apple continue to sue each other in different markets, with Samsung recently losing its ability to sell products in Germany.

George Riedel, chief strategy officer and president of business units at Nortel talked about the auction when it happened. "The size and dollar value for this transaction is unprecedented, as was the significant interest in the portfolio among major companies around the world," Riedel said.

Following the Nortel and Motorola acquisitions, investors and companies began to ask themselves which company was next. There have been speculation that Research in Motion could be the next to be acquired, given all the patents it currently holds.

Jaguar Financial, a small shareholder research In Motion put out the call. "Our call is for (RIM's board) to take action; no more study, take action. Take action now, before it's too late," Jaguar Chief Executive Vic Alboini said in an interview with Reuters. "We haven't found one who wasn't supportive," he said. "We haven't found any opposition."

At $11 billion plus a premium, buying Research in Motion would be a huge task for any company. Apple and Microsoft are the two companies that have the most cash on their balance sheets, but Apple has never been one to spend its money on acquisitions (and doesn't need RIM anyway), and Microsoft has not shown a willingness to buy Research in Motion yet.

At less than $3 billion, InterDigital could be the next company to get taken over. It is small enough for almost any of these companies to swallow whole, or a a group could split up the patents like what happened with Nortel. InterDigital has patents in digital cellular and wireless products and networks, including 2G, 3G, 4G, and IEEE 802-related products, according to Yahoo Finance.

The Pennsylvania-based company has been bandied about for months as a potential takeover target. Usually, where there is smoke, there is fire.

The patent wars might about to heat up again.

ACTION ITEMS:

Bullish:
Traders who believe that the patent wars will heat up again might want to consider the following trades:

  • InterDigital is certainly small enough to get taken over. Consider the common stock, or perhaps long-dated calls if you believe it eventually gets acquired. Other names that could get acquired are VirnetX Holding Corp. (NYSE: VHC) and Tessera Technologies, Inc. (NASDAQ: TSRA).

Bearish:
Traders who believe that buying patents will stop now that Congress has changed the patent laws may consider alternate positions:

  • InterDigital's stock spiked on the Motorola acquisition. It is still above those pre-spike levels. If nothing happens, shares could drop back even further.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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