Marathon Patent Group Will Report Big Profits This Quarter

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2016 has been phenomenal for my IP [intellectual property] holdings. VirnetX (VHC) went from $1.95 to $10, and Acacia (ACTG) rose from $2.82 to $4.89. My VirnetX analysis that was published right before the run-up can be found here. I expect significant returns with Marathon Patent Group (MARA).

Investors are completely missing the fact that Marathon is only a $26 million company, and will generate at least $33 million in revenue this quarter. Compare that to Acacia which just reported $24 million in quarterly revenue and is valued at $200 million. Or VirnetX which has a $250 million valuation and reported $400,000 in revenue for the last quarter.

Do you see the insane level of mispricing? Marathon should be valued much higher than its current valuation. When you consider the just announced Stryker settlement and the Yahoo victory including injunction, the level of Marathon’s undervaluation is even more extreme.

Marathon will turn profitable this quarter

Marathon just announced it will report more than $12 million in profit this quarter. Investors need to keep in mind that the last time Marathon transitioned to profitability, the share price went from $2 to $9. [Ed. note: before dropping back to $2 again.]

This is not some speculative trade, where investors are hoping that Marathon might generate significant income and possibly turn profitable someday. The numbers have been announced, and most of Wall Street missed it.

The Apple win should inspire other manufacturers to settle

A key statement in the 8K implies that other settlements will be following the Apple settlement.

“The company believes that other voice recognition services also infringe patents involved in the settled action.”

This victory is more important for Marathon than most investors realize, because any other infringing companies using this technology will realize that beating Marathon after Apple agreed to settle could be difficult. Settling could be the least expensive alternative.

Apple is not the only handset, tablet, or computer manufacturer out there. There’s also some big speech recognition companies that could be liable. Speech recognition is rapidly becoming more widely used, on phones, computers, call centers, in cars etc., and I expect growth in this area to continue.

Winning the Apple case opens the door to other very large settlements and increases Marathon’s value well beyond winning the Apple case.

The RPI patent makes it clear that other manufacturers could be liable

I recommend all investors study the RPI patent, and form their own conclusions when determining which other manufacturers besides Apple could be liable. Here is a synopsis of RPI’s invention pulled from the patent:

The invention claimed is: a method for processing a natural language input provided by a user, the method comprising: providing a natural language query input by the user; performing, based on the input, without augmentation, a search of one or more language-based databases including at least one meta-database comprising at least one of a group of information types comprising: case information; keywords; information models; and database values; providing through a user interface the result of the search to the user; identifying, for one or more language based databases, a finite number of database objects; and determining a plurality of combinations of the finite number of database objects.

Believe it or not, this section of the patent is actually the easy read. The rest of it gets a lot deeper and more complex.

But what’s important, is that when reading the above section pulled from the patent, it does sound like Siri or any other speech recognition program. A natural language input provided by user is a user talking into the microphone. The query and the search of one or more language-based databases sounds like the program going to work to get the answer for you.

The fact that Apple settled for $25 million suggests that additional settlements will be seen from other manufacturers. We should assume that Marathon is already in talks with these other big companies, so other settlement announcements could come at any time.

The Yahoo Pinterest ruling could generate at least $10 million for Marathon

Marathon also just scored a major victory in the Yahoo Pinterest case in Germany. I estimate that Marathon should generate $10 million-$15 million from this case. Given the injunction, the number could be even higher. Again, with Marathon’s $26 million valuation, a $10 million to $15 million settlement would be meaningful.

The stock didn’t react to this news at all, which was crazy. Investors were confused, because it appeared that a November 17, 2016 validity hearing could compromise Marathon’s position. In my opinion the November validity hearing is irrelevant, because Yahoo and Pinterest will not allow their businesses to be shut down until November as a result of the injunction.

The most important aspect of this case was that Marathon was granted injunctive relief, which means it can initiate an injunction immediately. Injunction means it can shut down the areas of Yahoo’s and Pinterest’s businesses that are using the infringing technology.

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Disclosure: I am long Marathon, VirnetX and Acacia.

Disclaimer and disclosure: It is probable that the author and his ...

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