Color Kinetics Lights Up Victory

Although patents can be an indication of a competitive moat for a company, I generally discount placing too much importance on them. Today's patent protection can be tomorrow's mark of obsolescence. Competitors can develop new processes or technologies that supercede the protection and competitive superiority a patent seemingly offers.

However, they are not to be completely dismissed, for when they are in effect, and particularly when they are upheld, they can provide an edge if not a downright insurmountable hurdle -- at least temporarily -- for competitors to work around.

Solid-state lighting leader Color Kinetics (Nasdaq: CLRK) is proving just how formidable a patent portfolio can be. It just won a summary judgment against Super Vision International (Nasdaq: SUPVA) that was rather sweeping in its endorsement of Color Kinetics' claims.

Interestingly, it was Super Vision that had filed suit against Color Kinetics claiming that its patents had been violated. A U.S. District Court judge felt differently and ruled not only that Color Kinetics not infringe on any patents but also that it was, in fact, the victim of patent infringement. Color Kinetics holds 41 patents that apply to a variety of aspects of solid-state lighting, with more than 130 additional patents pending.

Solid-state lighting is an advanced technology that can create energy-efficient lighting through the use of light-emitting diodes, or LEDs. Until recently, LEDs were capable only of emitting red light and were not particularly useful in lighting a room, unless you were some sort of macabre designer or wanted your room to look like a submarine in crisis mode. But researchers have been able to create green and blue LED light as well, allowing the creation of a full rainbow of colors, which has particular import for usage in TVs and movie screens, and even mobile phone screens and the like. Color Kinetics' lighting systems are currently in use in Brookstone (Nasdaq: BKST) novelty product stores, Harrah's (NYSE: HET) casinos, Marriott (NYSE: MAR) hotels, and elsewhere.

LED lighting also lasts 20 times longer than regular incandescent bulbs, which could result in a reduction in the cost of lighting homes and offices by half by 2025. While such solid-state lighting is currently more expensive than regular lighting, its cost is dropping.

Color Kinetics has been reaping the benefits of the technology -- and its patents -- and has seen its revenues steadily climb over the past two years. Last year it doubled its revenues to $40 million, and it's already some 32% ahead of those record levels this year.

Super Vision plans to appeal the court's findings, as it has done with each of the setbacks it has received along the way. Color Kinetics, though, is basking in the glow of its victory, as its stock soared more than 25% today on the news.

Solid-state lighting has the opportunity to shed new light on the way we look at the world around us.

Fool contributor Rich Duprey owns shares of Color Kinetics but does not own any of the other stocks mentioned in this article. The Motley Fool has a disclosure policy.