Unwired Planet's Patents Offer Significant Upside

There has been a lot of news lately about patent stocks. The most recent big winner in the patent stock arena has been Document Security Systems (DSS), a stock that has doubled over the last two weeks. The sharp move higher in DSS started with the most recent earnings report where information on their patents were revealed. Then on Monday DSS announced a sales and IP licensing partnership with Express Mobile, Inc. ("Xpressmo"), a developer of enterprise mobility solutions. This was just a primer for what was to come on Wednesday when DSS announced it has filed a patent lawsuit against Apple (AAPL). I have been very interested in patent plays over the last year, thanks in part to the large price moves in other patent licensing companies ParkerVision (PRKR) and Vringo (VRNG). Both companies over the last year have seen stock price appreciation in the range of 100% or more. A stock I just recently invested in, after substantial research in the patent arena, is Unwired Planet (UPIP). The move seen on Wednesday in DSS on its patent filing news against AAPL, now makes UPIP an even more compelling investment and I will go over the reason why in this article.

Background:

First some background on the DSS news from Wednesday. DSS's complaint alleges infringement by Apple of United States Patents 6,128,290 (the "'290 Patent") and 5,699,357 (the "'357 Patent"), both of which are entitled "Personal Data Network" and which disclose systems and methods of using low power wireless peripheral devices. DSS Technology Management acquired the '290 and '357 Patents during Q3 2013 as part of an effort to expand DSS's patent portfolio to enable DSS's secure facilities monitoring product, Sensorshield, (www.sensorshield.com) and to support R&D to develop dedicated peripheral devices that run AuthentiSuite, DSS's digital brand protection platform (www.authentiguard.com). This step taken by DSS is the first in a long process in the patent lawsuit fight. However, traders and investors have rewarded DSS with a 25% gain in its stock price since the news was announced.

This move in DSS brings me to UPIP, a stock much further along in its patent fight. What is likely unknown, or simply forgotten by investors, is that UPIP is also suing AAPL for patent infringement. However, unlike DSS, who has just begun the lawsuit process, UPIP is in ADVANCED stages of its lawsuit against AAPL. A Markman hearing is scheduled in the AAPL case for November. There is only ONE day left in the month of November, so UPIP could see positive news early next week.

To give investors an idea of the scope and size of the patent portfolio UPIP owns we need to only look to the deal they signed with Ericsson (GM:ERIAF) in January. As part of the deal UPIP purchased 2,185 U.S. and international patents and patents pending. This is on top of the 200+ patents developed internally over the last 20 years at the company. Key details from the deal include:

• 753 U.S. issued patents related to 2G, 3G and LTE technologies.


• 100 additional patents annually to Unwired Planet from 2014 through 2018


• Unwired Planet will pay Ericsson a cut of the license revenue it generates from the portfolio, including 20% of the first $100 million; 50% of revenues between $100 million and $500 million; and 70% for amounts above $500 million.

As you can see from the deal, the portfolio is extensive, covers all mobile technology, and is much broader and more relevant than those of the other patent companies. From this research alone UPIP looks like an excellent play in the patent sector for investors. UPIP is also in a very advanced stage of its patent monetization plan.

Here is a summary of the current patent litigation of UPIP:

Apple/RIM - District Court of Delaware

• A Single claim term Markman hearing is now scheduled for November 2013.

Apple - District Court of Nevada / Northern District of California

• "On October 16, 2013, the Northern District of California reassigned the case to Judge Yvonne Rogers in Oakland, CA. We are currently awaiting a Scheduling Order from Judge Rogers. Prior to this transfer, considerable activity took place, including the exchange of infringement and invalidity contentions between the parties and considerable discovery activity."

Google - District Court of Nevada

• "Markman hearing have not yet been scheduled but our best estimate at the moment is Summer 2014 for the Markman and Winter 2014 for the trial."

Square - District Court of Nevada

• "This case was recently filed against Square, Inc. related to mobile payment patents included in our Mobile Cloud & Services segment."

Shares of DSS have doubled over the last two weeks based simply on the filing of lawsuits, specifically the lawsuit against AAPL. UPIP has two lawsuits against AAPL, one in which Markman hearing results are expected next week. Based on the market caps for DSS, VRNG and PRKR I am able to come up with a market cap estimate for UPIP, based on these peers of $225m. This gives me a 50% upside potential for UPIP. DSS has only begun the patent lawsuit journey whereas UPIP is in advanced stages. For this lone reason I am very comfortable assigning a higher market cap valuation to UPIP. Also, as you can see from the chart below, UPIP is sitting on more cash than any of the other patent stocks. Over 40% of the market cap of UPIP is cash, compared to 15% for VRNG, 6% for PRKR and an astounding 3% for DSS. From this viewpoint we can see how undervalued UPIP is when compared to its peers. Simply based on a fundamental view UPIP offers a compelling valuation.

Conclusion:

UPIP is one of the oldest mobile tech companies there is. The company claims it invented the mobile internet. As an investor looking at the patents the company holds, the large gains seen in similar patent stocks, and the low valuation being assigned to the company, I believe UPIP is very undervalued and an excellent investment candidate for 2014. In May, in my article titled "Profiting From Markman Hearing Patent Stocks," I made an investment argument for shares of On Track Innovations (OTIV) when the stock price was $1.10. As of the writing of the article the stock has gained 200% to $3.29. I believe an even more compelling argument exists for an investment in shares of UPIP. For investors looking to play in the patent sector a 50% upside move in UPIP in the coming months looks very achievable.

Source: Unwired Planet's Patents Offer Significant Upside

Disclosure: I am long UPIP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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