GPS navigation service provider Garmin (Nasdaq: GRMN) is on the warpath, ready to beat on its European rival TomTom for allegedly infringing on its patents. However, the company has indicated that it's willing to settle this dispute without putting on the war paint. But TomTom seems uninterested in smoking a peace pipe, saying that it will vigorously defend itself.
In a lawsuit filed last month, Garmin claimed that TomTom is violating five U.S.-patented technologies -- it hasn't disclosed the specific patents -- which deal with ease-of-use issues and the display of streets onscreen. Garmin holds more than 200 patents, but its willingness to offer a settlement may be based on its own experiences with patent infringement litigation. In 2004, it was sued by NCR (NYSE: NCR), and though Garmin turned around and countersued, the issue was settled out of court for an undisclosed amount. A similar lawsuit arose last year with a small California-based company, ending with similar results.
Garmin is currently fifth in European market share, but it hopes to capture one-fifth of the market this year with new products. TomTom is the industry leader abroad, with 56% European market share. Here in the U.S., Garmin is the top dog; TomTom ranks second with a 25% share, up from just 7% when it entered the market here in June of last year. A third competitor, ThaleNavigation, which owns the Magellan GPS brand, comes in third, though it disputes the rankings compiled by NPD Group. Thale says it is the exclusive brand sold at certain retailers not monitored by NPD, and it believes that it is really the No. 1 or No. 2 company. NPD's data comes from tracking point-of-sales results from 600 retail companies worldwide.
Sales of portable navigation systems grew 192% year over year in the fourth quarter of 2005, according to NPD's data. GPS navigators were obviously a popular Christmas gift, probably thanks to falling prices and proliferating array of new features. With color screens, voice navigation, and thousands of points of interest -- all for $1,000 or much less -- they are quickly becoming a must-have gadget. Since I bought my Magellan RoadMate 800 in early December, I've hardly had to consult with MapQuest to plan my route.
Garmin saw its profits surge 82% in the fourth quarter, and while car navigation systems led the way with triple-digit growth, its aviation sector also saw heavy demand.
Protecting patents and technology is important for successful companies. But I'm wondering whether this particular suit is more about the inroads TomTom has made on Garmin's turf. Companies sometimes try to win battles in court that they can't in the marketplace. With the GPS turf war bruising both companies here and abroad, an undisclosed settlement would allow Garmin and TomTom to save face and bury the hatchet.
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Fool contributor Rich Duprey owns a Magellan GPS device but does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
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