Why InterDigital Inc. Shares Collapsed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of InterDigital  (NASDAQ: IDCC  )  stabilized at a 7% loss at the closing bell Friday after suddenly collapsing by 12% in the afternoon. The sharp plunge occurred after news broke that InterDigital's phone-patent lawsuits against Nokia (the company's mobile segment is now owned by Microsoft (NASDAQ: MSFT  ) ) had been rejected in court.

So what: InterDigital filed the lawsuit with the International Trade Commission, alleging that Nokia and Chinese phone maker ZTE manufactured phones that violated its patent for a method of improving wireless transmissions, and accusing ZTE of additional infringements as well. Samsung had been a party to the case but agreed to pay royalties last week. Only the judgment was publicized today,-- a final ruling by the full International Trade Commission is expected in October -- and the withholding of the full findings may make it difficult to build an accurate investing thesis around today's rejection. An earlier case against Nokia, ZTE, and Huawei was rejected late last year, and is on appeal.

Now what: InterDigital has tried three times to sue over smartphone patents since 2007, and this is its third loss. However, the two earlier lawsuits were not unqualified failures -- one was revived on appeal and one is still working through the appeals process -- and InterDigital CEO William J. Merritt  has said the company will appeal this one as well, if necessary.

InterDigital has generally been able to reach licensing agreements with phone makers, as most of its $325 million in revenue last year came from royalty payments. Nor is Nokia unfamiliar with licensing InterDigital's patents, as it paid $253 million in 2006 to settle earlier patent claims. These aspects of the case, and the fact that InterDigital's valuation is near its highest level in five years, should inspire caution in any bargain hunters who might think there's greater upside than downside left in this legal battle.

Are you ready for this $14.4 trillion revolution?
Have you ever dreamed of traveling back in time and telling your younger self to invest in Apple? Or to load up on at its IPO, and then just keep holding? We haven't mastered time travel, but there is a way to get out ahead of the next big thing. The secret is to find a small-cap "pure-play" and then watch as the industry -- and your company -- enjoy those same explosive returns. Our team of equity analysts has identified one stock that's ready for stunning profits with the growth of a $14.4 TRILLION industry. You can't travel back in time, but you can set up your future. Click here for the whole story in our eye-opening report.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2994070, ~/Articles/ArticleHandler.aspx, 8/29/2015 5:08:14 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Alex Planes

Alex Planes specializes in the deep analysis of tech, energy, and retail companies, with a particular focus on the ways new or proposed technologies can (and will) shape the future. He is also a dedicated student of financial and business history, often drawing on major events from the past to help readers better understand what's happening today and what might happen tomorrow.

Connect with Alex on LinkedIn or Twitter for more news and insight:

View Alex Planes's profile on LinkedIn

Today's Market

updated 19 hours ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 3:59 PM
IDCC $49.46 Down -0.05 -0.10%
InterDigital Commu… CAPS Rating: *****
MSFT $43.93 Up +0.03 +0.07%
Microsoft CAPS Rating: ***