Only a day after iRobot (NASDAQ: IRBT) stock plunged, as a short-seller highlighted the threat of new competition for the Roomba maker, the company offered an effective reminder of how hard it is to muscle into its turf. More specifically, on Thursday, iRobot announced it has reached a confidential agreement stemming from a patent dispute with Micro-Star International (MSI), a Taiwan-based computer and component manufacturer.
Per the terms of the agreement, MSI has agreed to pay iRobot an undisclosed amount and to exit the robotic-cleaning industry worldwide. In turn, iRobot has agreed to remove Hoover Quest 600, 700, and 800 products sold by Hoover, Inc. from a pending U.S. International Trade Commission (ITC) investigation and a related court case in Massachusetts.
iRobot isn't finished yet
Investors should note that MSI is only one of several companies named in iRobot's patent-enforcement actions, the legal proceedings for which were originally filed in April and spurred the ITC's official investigation the following month. While iRobot is removing the three aforementioned Hoover robotic vacuums from its complaint -- presumably because parts supplied by MSI were the source of their respective patent violations -- iRobot is still pursuing action against Hoover for its Quest 1000 product, as well as various products from Bissell, bObsweep, Black & Decker, Taiwan-based Matsutek Enterprises, and two Chinese companies, including Shenzhen ZhiYi Technology and Shenzhen Silver Star Intelligent Technology.
That's not to say enforcing its fortress-like patent portfolio is always fast work for iRobot. You might recall that Shenzhen Silver Star was the subject of preliminary injunctions obtained by iRobot through a court in Germany in 2013, and even had its infringing products seized from that year's IFA consumer electronics show in Berlin. Shenzhen Silver Star's offerings appeared to be virtual carbon copies of iRobot's most popular Roomba models at the time, but that's also still the case with many of the industry's value-priced Roomba knockoffs today.
Protecting what's theirs
iRobot VP and chief legal officer Glen Weinstein added:
This settlement represents the first successful milestone on the enforcement effort iRobot initiated earlier this year. Since being founded more than 25 years ago, iRobot has made significant investments in R&D and intellectual property to innovate and bring consumer robotic technologies to market worldwide. The agreement by MSI to exit the robotic cleaning industry signifies the value of iRobot's intellectual property and the company's efforts to protect it.
I've pointed out before that iRobot typically aims to spend around 12% of its annual revenue on research and development -- a figure that equates to more than $100 million this year based on the $850 million midpoint of iRobot's latest 2017 revenue guidance. That's also a goal that activist investors have tried -- and thankfully failed -- to curb in the interest of bolstering iRobot's near-term margins. But while $100 million might sound overwhelming, iRobot rightly views these investments as crucial to maintaining its innovative roots and extending its technological market leadership.
This also isn't iRobot's first rodeo in the patent-dispute world. In addition to its previous action against Shenzhen Silver star, its other notable IP defenses include a patent infringement lawsuit against five European companies in 2013 and a trade secrets theft and patent-violation case against defense robot company Robotic FX in 2007.
As it stands, iRobot has an evidentiary hearing in the ITC investigation scheduled for March, 2018, so investors will likely need to wait until then to receive fresh color on this case. But given the precedent set by iRobot's agreement with MSI this week, I won't be the least bit surprised if we see more competitors bowing out of the market in the coming months.