When NVIDIA Corporation (NASDAQ:NVDA) first revealed plans last summer to begin licensing its visual computing patents to device manufacturers, the stock quickly jumped to a new 52-week high amid optimism for its prospects. Until now, however, NVIDIA hadn't provided any meaningful updates on the progress of its licensing business, instead mostly reminding investors that such agreements take time to put into place.
But last week, investors got a doozy of an update on how those talks have gone so far.
For the first time in its 21-year history, NVIDIA Corporation (NASDAQ:NVDA) initiated a patent infringement lawsuit. And make no mistake: Billions of dollars could be hanging in the balance.
To be sure, the subjects of NVIDIA's ire are none other than electronics giant Samsung (NASDAQOTH:SSNLF) and mobile chip specialist Qualcomm (NASDAQ:QCOM). According to NVIDIA Executive VP David Shannon, both tech giants have "chosen to deploy our [intellectual property] without proper compensation to us." At question are seven of NVIDIA's 7,000 patents, most notably encompassing its invention of the GPU, programmable shading, unified shaders, and multithtreaded parallel processing in GPUs.
As a result, NVIDIA has requested damages not only for the infringement, but also for the International Trade Commission to block shipments of Samsung Galaxy Mobile phones and tablets containing Qualcomm's Adreno, ARM Holdings' Mali, or Imagination's PowerVR graphics architectures. That list reads like a who's who of Samsung's latest and greatest tech, including the Galaxy S5, Galaxy Note 3, and Galaxy S4 smartphones; Galaxy Tab S, Galaxy Note Pro, and Galaxy Tab 2 tablets; and the recently unveiled Galaxy Note Edge and Galaxy Note 4 "phablet" devices.
To its credit, NVIDIA did try to avoid the courts. Shannon elaborated:
NVIDIA's licensing team negotiated directly with Samsung on a patent portfolio license. We had several meetings where we demonstrated how our patents apply to all of their mobile devices and to all the graphics architectures they use. We made no progress. Samsung repeatedly said that this was mostly their suppliers' problem.
Unfortunately for Samsung, NVIDIA obviously begs to differ, considering all of Samsung's flagship mobile devices contain the alleged infringing technology.
What's more, keep in mind this isn't NVIDIA's first IP rodeo. In fact, NVIDIA previously licensed a custom GPU core to Sony for its PlaySation 3 console, and Intel has paid NVIDIA more than $250 million per year since 2011 under a six-year, $1.5 billion settlement to license its visual computing patents.
It's unclear at this point just how large a similar agreement with Samsung would be, but suffice it to say NVIDIA didn't start this legal war over pocket change. At the same time, NVIDIA doesn't exactly need the money; the company is solidly profitable in its own right and ended last quarter with nearly $4.4 billion in cash and equivalents on its balance sheet.
But it also makes sense that NVIDIA would want to defend the intellectual-property portfolio on which it claims to have spent $9 billion through research and development over the past two decades. In the end, if NVIDIA successfully forces Samsung and Qualcomm to pay up, that would certainly prove to be money well spent.
Steve Symington owns shares of Apple and NVIDIA. The Motley Fool recommends Apple, Intel, and NVIDIA and owns shares of Apple, Intel, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.