Why Did Marvell’s Shares Just Tank?

On what was a nice day for the Nasdaq, which gained 1.05%, shares of Marvell (NASDAQ: MRVL  ) plummeted 4.99% on what was seemingly no material news. However, interestingly enough, the company filed its form 10-Q today, which contained a bunch of new lawsuits that the company will have to deal with. Given the overhang from the Carnegie Mellon patent infringement suit, investors may be uneasy due to the new lawsuits that have appeared since the form 10-K was filed on March 27.

Marvell's getting sued because it got sued
In addition to the no-less-than six lawsuits that were already known about in the prior filing (there are six of them with trial dates scattered throughout late 2014 and across 2015), a couple of new ones just popped up. The first is an action filed by Lee Voss asserting putative class action claims on behalf of the company's shareholders. The complaint essentially claims that the company's corporate officers and board of directors breached their fiduciary duties by allowing the company to willfully infringe on key patents in their hard disk controller chips.

Now, Marvell needs to offer a response to these allegations by July 23, 2014. Of course, given that Marvell states in the same form 10-Q that it believes that the Carnegie Mellon suit was unjust, and that it will appeal the "guilty" verdict, it is likely that Marvell will offer a response echoing those views. It's unclear how this will play out, but it's nowhere near as frightening as some of the other patent lawsuits that the company has to deal with later this year and next year.

A new patent infringement suit?
On May 9, 2014, Bandspeed filed a suit against Marvell Semiconductor alleging the infringement of a number of patents related to Bluetooth technology. The complaint seeks unspecified damages. Given that Marvell's connectivity business is currently booming, and the company is likely selling quite a bit of Bluetooth-capable chips, this could make investors particularly uneasy.

Many technology companies have overhanging lawsuits and, very often, they are dismissed, or have minimal impact. For example, Freescale Semiconductor, (NYSE: FSL  ) filed a complaint against Marvell, and then Marvell filed a complaint against Freescale, only to have both complaints dismissed. However, investors may be sensitive to this sort of thing with respect to Marvell given that, unless Marvell can successfully appeal the judgment made against it in the CMU case, it stands to fork over about $1.54 billion in past damages and post-judgment royalties. It would also need to pay ongoing royalties on the sale of hard disk controller chips, although it would probably find a way to design around those patents pretty quickly in this case. 

In short, Marvell can't afford another doozy like the Carnegie Mellon suit.

Foolish bottom line
While the litany of lawsuits that Marvell has to deal with isn't anything new for a technology company operating in a world of fast and furious competition, as well as a slew of patent trolls, the uncertainty around the Carnegie Mellon suit -- which, if Marvell ends up having to pay, would be pretty serious -- already has investors on edge. Further, if Marvell actually can't successfully appeal this judgment, not only could the company suffer pretty serious financial damage, but it could shake investor confidence in the company's innocence in the other cases.

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