April 15, 2013

Positive Markman Ruling

Event

Wi-LAN announced that it has won the majority of its claims in its Markman ruling

regarding its handset case against Apple et al. We note this case relates to Wi-Fi, CDMA

technology. Recall, the Markman ruling was for two patents: 1) 5,282,222 (the 222

patent); and 2) RE37,802 (the 802 patent). This case involves a multitude of parties listed

below, which are now ordered within 30 days to mediate this case with an agreed upon

mediator.

Details

The U.S. District Court of the Eastern District of Texas (Judge Rodney Gilstrap) issued

a claims construction Opinion and Order (Markman hearing) regarding Wi-LAN’s

ongoing litigation against defendants Apple, Inc. (AAPL-Q, NR), Dell Inc. (DELL-N, NR),

Hewlett-Packard Company (HPQ-N, NR), HTC America, Inc. (2498-T, NR), Novatel

Wireless, Inc. (NVTL-Q, NR), Sierra Wireless America (SW-T, $17.00 TP, Buy), Inc. and

several of their affiliates.

Recall Wi-LAN is alleging infringement of the 802 patent related to multicode direct

sequence spread spectrum (MS-DSSS), and the 222 patent related to the method and

apparatus for multiple access between transceivers in wireless communications

using orthogonal frequency-division multiplexing (OFDM) spread spectrum. Recall,

these patents had previously been ruled upon through this court, so this outcome is

good validation

The claims construction highlighted that the court has interpreted 16 of its 21 claims

relating to the above patents in Wi-LAN’s favour (see Figure 1 for more detail)

The parties are now ordered, within 30 days, to mediate this case with an agreed

upon mediator, which is typical for this type of outcome. The trial for this case is

scheduled to begin on Oct. 7.

Conclusion

In sum, we are very pleased with this outcome and maintain our view that this case could

provide significant earnings accretion in the face of a meaningful settlement. There are no

changes to our estimates. We maintain our Buy recommendation and $9.00 target.

Valuation

Our primary assumptions are summarized as follows:

For 2013, we have assumed some modest wins, but also significantly higher legal

expenses, as the company will be active with numerous hearings and trials under seven

different litigations.

Therefore, for the purposes of valuation, we believe it is more appropriate to capture a

more fulsome run-rate of the company’s earnings potential, so we have used blended

2013–2014 earnings to derive our target price.

Applying our same 15x P/E to our blended 2013–2014e earnings of $0.63/sh yields a $9.00

target price. We estimate a DCF value of current business (and assuming no new business)

yields a $3.56/sh value (includes cash). Therefore, it appears the market is only valuing the

company’s current business on hand and has ascribed very little value to current litigations

or potential new business, which we believe has the potential to add many fold to the

company’s current value. There are no changes to our estimates. We maintain our Buy

recommendation.

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Above information is excerped from the analyst note.

Supplied by mindreader....