Unwired Planet Inc. (UPIP), the patent licensing company run by CEO Boris Teksler, said it swung to a net loss of $41.8 million, or 37 cents a share, in the fiscal year ended June 30 on higher revenue sharing and licensing expenses.
The net loss compared with a profit of $433,000 or zero cents a share in fiscal 2014. Revenue for the year was $4.5 million, down from $36.4 million. Patent licensing expenses for the year increased to $31.07 million from $23 million. General administrative expenses for the year increased to $11.03 million from $9.98 million.
Unwired Planet has been struggling to make a profit since acquiring a portfolio of 2,150 patents from Ericsson that many believe made it all but impossible for Unwired Planet to monetize its patents.
The much criticized deal required Unwired Planet to pay Ericsson up to 20% of the first $100 million it receives in licensing agreements, 50% of the next $400 million and 70% of any amounts above $500 million.
The company is counting on Teklser, a senior executive from Technicolor SA, a technology provider to media and entertainment sectors, to try to restructure that deal.
Teksler has only been CEO since June and hasn't had enough time to make meaningful changes at Unwired Planet, said Rob Aronoff, a managing partner at Pluritas LLC in Tiburon, Calif. "Give him six months, or 9 months, he's going to make changes. He has the skills, the expertise and temperament as a manager to do the right thing."
Unwired Planet "is one of the patent licensing entities that have some means -- money and assets -- to give them a fighting chance" in the current litigation environment, he added.
The company "is in a unique position because it has a number of ostensibly positive signals as a licensing entity: 1) it has lots of cash (nearly $85M in cash/cash equivalents/short-term investments); 2) it owns a significant number of high-pedigree patents (Over 2,000 Ericsson patents + legacy Openwave patents); and 3) it has significant NOLs," said Mark Gober, a director at 3LP Advisors in an email.
To be sure, Gober said there are challenges for the business, particularly in light of the company’s burn rate and $31M in licensing expenses for fiscal year 2015.
"Relative to its strong asset position, UPIP has engaged in less litigation than I’d expect from a pure patent licensing entity. And the existing lawsuits have had limited success."
The company’s pending U.S. cases have either been unsuccessful (Apple/Google on appeal) or are on hold pending IPRs (Square). UPIP has a small number of cases in the U.K. and Germany as well.
"Germany has become a preferred jurisdiction for patent holders because of the ability to obtain injunctions against infringers’ products, which can be then used to induce favorable settlements. However, even though the German court found two UPIP patents to be infringed by Huawei, UPIP said it does not anticipate it will seek an injunction.
Moreover, Gober said Germany is not known for awarding particularly large damages figures, so the potential for a significant licensing deal related to that lawsuit seems limited.
Shares of Unwired Planet fell 2.95 cents to 78 cents in trading today. Prior to Teksler’s appointment, Unwired Planet shares had lost more than two-thirds of their value in the past year. The shares have traded between 54 cents and $2.28 over the past year.
Unwired Planet had cash and cash equivalents of $73.8 million as of June 30, 2015, down from $93.9 million as of Dec. 31, 2014.
The company said it expects to burn through about $6.5 million in the first two quarters of fiscal 2016 and a lesser amount in the third and fourth quarters.
During a conference call with analysts and investors, Teksler said that Unwired Planet was extremely "frustrated" by its inability to monetize its patents to date and that his plan is to change that through a new approach that calls for a greater focus on standard essential patents and the more efficient patent battlegrounds in Germany and the U.K. He said Unwired Planet also intends to be open to arbitrated or mediated outcomes as long as it has a willing licensee.
The focus on standard essential patents "can present challenges because of the fair, reasonable, and non-discriminatory (FRAND) licensing requirements," Gober said. "There’s often a debate between licensors and licensees over what constitutes a 'reasonable' royalty rate, which can lead to delayed licensing deals and the potential for protracted litigation.
An analogy is the Vringo/ZTE situation, where Vringo is experiencing FRAND licensing challenges in its worldwide disputes with ZTE. After several years of litigation, and even after multiple victories in courts around the world, Vringo has still not been paid by ZTE.
Gober said he also wonders whether the focus on arbitration and mediation "will be effective in applying adequate pressure to achieve the kinds of licensing dollars that UPIP is hoping for. Today’s licensing environment is challenging, and successful litigation is often needed to generate substantial licensing revenue."
Asked whether Unwired Planet's board had conducted a review of the value of its patent portfolio with an eye toward considering a possible sale, Teksler demurred, saying the board had not conducted such a review and that furthermore the current litigation environment, which he called "compressed" made now an inopportune time to do so.
"We think the IP business has value and that value is compressed at the moment. This would be an inopportune time to look at that."
Teksler said the company's board has set up a new M&A committee that will establish an strategy for acquiring new intellectual property and operating companies. The M&A committee is being led by Peter Reed, a managing partner of Mast Capital, which has built a significant position in Unwired Planet by purchasing shares from Indaba Capital and Starboard Value.
Boston-based Mast Capital has an 18.8% stake in Unwired Planet and needs permission from the board to increase its position. The investment manager also has about $31.23 million in senior secured notes due in 2018, which were purchased from Indaba Capital.
In addition, he said the company is looking for ways to reduce costs and plans to hire 3 to 5 new in-house attorneys to allow it to rely less on more expense outside counsel.
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