Recent patent litigation has been particularly heavy in the mobile phone industry, where Apple Inc. (NASDAQ: AAPL), Google Inc. (NASDAQ: GOOG), Research in Motion Ltd. (NASDAQ: RIMM), HTC Corp., Samsung Electronics Co. Ltd. (OTC: SSNLF), LG Electronics, Sony Corp. (NYSE: SNE), L.M. Ericsson Telephone Co. (NASDAQ: ERIC), and Nokia Corp. (NYSE: NOK) have filed and counter-filed a stack of lawsuits related to smartphone technology. Eventually the smartphone makers will come to some kind of cross-licensing agreement, but that day could still be a ways off.

A new study by three professors at the Boston University School of Law puts the cost of patent lawsuits at $500 billion in lost wealth to defendants during the 20-year period from 1990 to 2010.  The average lawsuit costs the defendant about $122 million, and the median loss is $20 million. According to the BU study, just 9% of the lost wealth goes to what are politely known as non-practicing entities, NPEs, and more commonly known as patent trolls — the rest simply evaporates as legal fees, costs of lost business, management distraction, and diversion of resources from product development.

The patent trolls often claim that they are providing a service to small inventors by making it possible for the inventors to share in the spoils of patent infringements. Yet the BU study concludes that small inventors typically receive just 2% of the money.

Google’s recent acquisition of Motorola Mobility Holdings Inc. (NYSE: MMI) added 24,500 patents to Google’s arsenal and created speculation that Eastman Kodak Co. (NYSE: EK) and its 1,100 digital imaging patents would be next on the block. Kodak’s portfolio has been valued as high as $3 billion, or nearly 5x the company’s current market cap. Google paid about $500,000 for each of Motorola’s patents, and the consortium of companies that bought Nortel’s 6,000 patents paid $65,000 for each of those.

Patent trolling got more difficult last week, though, with the enactment of the America Invents Act. While most of the attention on the passage of the new patent laws focused on the first inventor issue, the law also changed the way patent actions may be filed.

Under the old law, a plaintiff could round up as many defendants as possible and sue all in a single action. That will no longer be possible. The new law requires that a separate action must be filed against each accused infringer. The economics of filing patent infringement lawsuits has changed dramatically now that a single action cannot include a host of alleged infringers.

The study provides a list of publicly traded NPEs that includes Rambus Inc. (NASDAQ: RMBS), Acacia Research Corp. (NASDAQ: ACTG), Interdigital Inc. (NASDAQ: IDCC), Tessera Technologies Inc. (NASDAQ: TSRA), and Wi-Lan Inc. (NASDAQ: WILN). Of these stocks, Acacia’s shares have surged by 80% since January and Interdigital’s have risen by 40%.

The BU study’s most interesting conclusion is that there is no huge transfer of wealth from defendants to patent trolls. The bulk of the lost wealth is a cost borne by society at large. And the loss shows up in the lack of innovation and new product development.

There are some possible arguments against that conclusion, not the least of which is that there’s no guarantee that companies would spend the lost wealth on innovation instead of extravagant management perks. There’s ample evidence that company management does not always do the right thing.

Paul Ausick

AECOM Technology Corp. (NYSE: ACM) Reiterated Buy with $33 target at Argus.
American International Group, Inc. (NYSE: AIG) Raised to Market Perform at KBW.
Berkshire Hathaway Inc. (NYSE: BRK-A) Raised to Overweight at Barclays.
Boston Scientific (NYSE: BSX) Raised to Outperform as Bull of the Day at Zacks.
CBS Corp. (NYSE: CBS) Raised to Buy with $31 target at Argus.
First Solar Inc. (NASDAQ: FSLR) Maintained Buy but cut target to $140 at Argus.
Humana Inc. (NYSE: HUM) Raised to Buy at Goldman Sachs.
McDonald’s Corporation (NYSE: MCD) Raised to Conviction Buy List at Goldman Sachs.
Merck & Co. Inc. (NYSE: MRK) Raised to Buy at Jefferies.
Pfizer Inc. (NYSE: PFE) Raised to Buy at Goldman Sachs.
PPG Industries, Inc. (NYSE: PPG) Reiterated Buy as Value at Zacks.
StanCorp Financial Group (NYSE: SFG) Cut to Underperform as Bear of the Day at Zacks.
Tyco International Ltd. (NYSE: TYC) Raised to Buy at Goldman Sachs.
Wells Fargo & Company (NYSE: WFC) Raised to Outperform at FBR.
Wynn Resorts Ltd. (NASDAQ: WYNN) Raised to Hold at Citigroup.

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JON C. OGG

Berkshire Hathaway Inc. (NYSE: BRK-A) Raised to Outperform at KBW.
The Coca-Cola Company (NYSE: KO) Raised to Conviction Buy List at Goldman Sachs.
Compania Cervecerias Unidas S.A. (NYSE: CCU) Cut to Underperform at Credit Suisse.
E.I. DuPont de Nemours (NYSE: DD) Maintained Outperform as Bull of the Day at Zacks.
EMC Corp. (NYSE: EMC) Raised to Buy at Auriga.
EOG Resources, Inc. (NYSE: EOG) Raised to Buy at Citigroup.
Gardner Denver, Inc. (NYSE: GDI) Reiterated Buy as Value at Zacks.
HomeAway, Inc. (NASDAQ: AWAY) Started as Hold at Stifel Nicolaus; Started as Overweight at JPMorgan; Started as Overweight at Morgan Stanley.
JB Hunt Transport Services Inc. (NASDAQ: JBHT) Cut to Neutral at Robert W. Baird.
KLA-Tencor Corporation (NASDAQ: KLAC) Raised to Overweight at Morgan Stanley.
NetApp, Inc. (NASDAQ: NTAP) Raised to Buy at Auriga.
Procter & Gamble Co. (NYSE: PG) Raised to Outperform at Bernstein.
Starbucks Corporation (NASDAQ: SBUX) Raised to Outperform at Robert W. Baird.
Starwood Hotels & Resorts Worldwide Inc. (NYSE: HOT) Raised to Outperform at Bernstein.
Tessera Technologies Inc. (NASDAQ: TSRA) named as Bear of the Day at Zacks.
Texas Instruments Inc. (NYSE: TXN) Cut to Market Perform at FBR.
Weight Watchers International, Inc. (NYSE: WTW) Started as Overweight with $80 target at Credit Suisse.
Yum! Brands, Inc. (NYSE: YUM) Raised to Outperform at Robert W. Baird.

• You can also see the top analyst calls of last week here, which have a much longer-term impact rather than just a day or two. Stocks noted: BAC, BRCD, DNDN, DG, LNKD, HK, POT, RSH, SNDK, SYMC, MCD, TEVA, TA, WMT, and YHOO.

You are invited to join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

Amazon.com Inc. (NASDAQ: AMZN) fell 7.2% to $171.14 on Friday on nearly 20 million shares.  Despite a 36% gain in earnings revenues fell short of estimates and its guidance was mixed as the margin pressure continues here.  Shares had hit an all-time high of $191.60 just a week before.

Arena Pharmaceuticals Inc. (NASDAQ: ARNA) died on Friday as shares fell 18.5% on more than 10 million shares to $1.63 after the company announced a 25% workforce cut while it focuses on regulatory approval of its diet drug called lorcaserin. Biotechs cutting workforce… bad.

Bionovo Inc. (NASDAQ: BNVI) is not as commonly discussed because of a low price, but its shares were hammered down by 20.9% Friday after a stock and warrant sale to help advance its menopause drug to late-stage trials.  Some 4.7 million shares traded and it fell to $0.87 versus a 52-week range of $0.84 to $3.15.  Friday marked a new 52-week low.

Eastman Kodak Co. (NYSE: EK) is about as ugly as it gets.  It lost a patent case and then on Wednesday announced a 95% drop in profits that missed expectations due to film, digital, and IP-licensing revenues.  Nothing ever works here and selling volume peaked at 70 million shares on Wednesday.  On Monday shares were $5.22, but on Friday shares closed at $3.64.  The tally comes to a drop of a whopping 30%… At least the short sellers cleaned up.

Ford Motor Co. (NYSE: F) caught everyone off guard on its earnings miss.  After so much improvement, what goes up exponentially must fall back down to reality.  Friday’s drop came to 13.4% in the red and on a massive 480 million shares on Friday alone.

Infinera Corp. (NASDAQ: INFN) was another huge loser on Friday with shares falling 17.9% to $7.37 on more than 11.2 million shares.  Its adjusted profit beat its forecasts, but the communication equipment maker gave guidance that was well under estimates.  Its 52-week range is $5.70 to $12.90.

Monster Worldwide Inc. (NYSE: MWW) was a serious loser this week.  After earnings and revenue came in very lackluster, its guidance was soft, it switched CFOs, and LinkedIn filed for an IPO.  Monster shares fell 25.4% to $15.95 on more than 21 million shares.

Momenta Pharmaceutical Inc. (NASDAQ: MNTA) was battered this week on fears that its role in selling generic blood thinners may be ending. Shares closed on Monday at $15.80 and closed out Friday at $12.49, withe the peak volume on Tuesday of almost 9 million shares.  Its drop for the week: -20.9%.  At $12.49, its 52-week range is $10.77 to $26.20.

Motorola Mobility Holdings Inc. (NYSE: MMI) got its first dose of earnings as its own public company this week.  Earnings beat estimates but the first quarter is put at only break-even on an operational basis.  Shares were down over 12% on Thursday’s 12.65 million shares, but the drop continued on Friday.  The pre-earnings high of $34.83 on Wednesday turned into $29.59 on Friday by the close.  The drop here came to 15% from Wednesday’s close to Friday.

Myriad Genetics Inc. (NASDAQ: MYGN) had a very hard Friday as ist Q2-profit fell by 32%. Income tax provisions and margins were not enough to matter even after it affirmed the annual guidance.  Shares fell by 13.8% to $19.30 on Friday on volume of more than 7 million shares.

Pluristem Therapeutics Inc. (NASDAQ: PSTI) was crushed on Thursday as shares were down by 26% to $3.09 after the cell therapy company showed the size and price of stock and warrant offering was very dilutive.  If it helps at all, shares were back up a whole 1.29% to $3.13 on Friday.

PMC-Sierra Inc. (NASDAQ: PMCS) saw its shares punished this week and Friday’s drop was 12.8% to $7.77 on more than 25 million shares after the provider of broadband communication chips said Q4 earnings fell by about 28% as margins fell and R&D costs rose.  On Monday, shares were at $9.00 on the close… making for a loss of almost 14% from Monday’s close to Friday’s close.

Quantum Corp. (NYSE: QTM) went from bad to worse after profits missed estimates due to an inability to close business in the quarter.  Guidance was weak too.  Shares were down more than 16% on Thursday to $3.01, but then shares slid yet another 8.3% on Friday down to $2.76.  After a close lower each day since Monday’s close of $3.93, the drop from Monday’s close to Friday’s close was a whopping 29.7%.

Tessera Technologies Inc. (NASDAQ: TSRA) wished that Friday would not have come.  Despite a large gain in profit, revenue, and margins, Tessera lowered guidance and announced job cuts.  Shares closed down 19.3% to $17.11 on Friday on more than 2.8 million shares.

You can join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

Changyou.com Limited (CYOU) has technically gotten back under the prior intra-day high, but is still up 1.7% at $38.30 today.  This one has now doubled from its IPO level.  If this price holds, it would be the highest close since coming public.

Majesco Entertainment Co. (COOL) is up 23% at $2.08, and the prior range is $0.36 to $1.93.  Even with today’s run, the market cap is a mere $63 million.  As we noted on our March 31 weekly “10 Stocks Under $10″ Newsletter… “…we have been very cautious on for well over a year.  But now the company has given up on trying to have a major hit, which we agree on… Now the company has switched its focus to be more of a Wii game publisher and it just might work…. With a mere $30 million market cap, one win here could turn things around massively.”  The new lineup at E3 is being viewed as a hit and the company’s push to lower-priced games is working, and “Cooking Mama” is helping too.

Tessera Technologies Inc. (TSRA) is up 8% at $26.36 on the day after securing a patent licensing pact from Motorola.  The prior range was $8.33 to $24.89. Its recent patent verdict from the ITC is helping the company lock-up licensed supply pacts.

TiVo Inc. (TIVO) is now up 50% at $10.50 on the day, and its prior 52-week range was $4.00 to $9.07.  Based upon what we saw at VSinvestor.com this morning, this actually represents a 5-year high.  Winning this ongoing perpetual patent case against EchoStar is the culprit.  While an appeal is certain, this is another potential windfall for the company.

Jon C. Ogg
June 3, 2009

The commission also issued a cease-and-desist order against Motorola (NYSE: MOT), Qualcomm (NASDAQ: QCOM), Freescale, and Spansion.  This cease and desist from the ITC directed these companies to stop selling infringing articles out of their US inventories.  Tessera also noted that ATI Technologies of Advanced Micro Devices (NYSE: AMD) was also one of the respondents.  It looks like Qualcomm has already shifted chip supplies to another licensed party.  Workarounds in these cases are not unusual, and they can sometimes do nothing to alter or change verdicts.

What makes Tessera important is that its operations and licensing are for miniaturization technologies in wireless, consumer and computing products. Its packaging and interconnect solutions enable smaller and higher-functionality electronic devices.  The imaging and optics solutions provide low-cost and high-quality camera functionality.  In short, it helps to make all of the electronics in your tech gadgets and gizmos smaller and therefore more efficient.

It is important to know that an ITC  ruling is not the final victory.  There is an appeals process and these cases can drag on and on for years.  Ask Qualcomm and Broadcom how long patent infringement cases can go on.

Tessera is somewhat thinly followed by analysts.  Before this ruling, they were also looking for no solid growth from 2008′s $248.3 million in revenues.  Estimates from Thomson Reuters are $276.7 million in 2009 and only $255.7 million in 2010.  Earnings for 2009 are projected to be $1.10 EPS and for 2010 they are projected to be $1.04 EPS.  It is possible that this is all about to change for the better, but the appeals process and the coming months could end up having no real effect on that depending on what gets filed and what happens in the coming months.

Tessera is also well financed for a chip and technology design licensing firm.  As of March 31, it had over $380 million in cash, equivalents, and investments.  It has virtually no real long-term debt and all of its liabilities came to $80.25 million.

Again, this is no a slam dunk.  Some patent infringements are reversed and some are settled.  Calculating the exact damages and what royalties could apply down the road is premature at this point.  That is doubly the case when you consider that there is no assurance that Tessera will collect on this matter.

Here is more detailed data from the company’s Legal Newsroom.  There is suddenly much more work and research that needs to be conducted on this stock.

After a 24% gain to $20.54 this morning, the company’s market cap looks to be about $1 billion.  Its 52-week trading range is $8.33 to $24.84.

JON C. OGG
May 21, 2009

SolarFun (SOLF) is getting hurt on sub-par earnings. Details.

Tessara (TSRA) got some bad news from the ITC. Details.

Douglas A. McIntyre

• National Grid (NYSE: NGG) Raised to Overweight at HSBC.
• Qiagen (NASDAQ: QGEN) Started as Overweight at HSBC.
• Regal Entertainment (NYSE: RGC) Started as Buy at Merriman Curhan Ford.
• Williams-Sonoma (NYSE: WSM) Raised to Buy at Merrill lynch.
• Global Payments (NYSE: GPN) Cut to Neutral at Baird.
• Gold Fields (NYSE: GFI) Cut to Neutral from Buy at UBS.
• Quest Software (NASDAQ: QSFT) Cut to Neutral at Goldman Sachs.
• Tessera Technologies (NASDAQ: TSRA) Cut to Neutral at Piper Jaffray.

Jon C. Ogg
December 2, 2008

• Dollar Tree (DLTR) Raised to Buy at S&P.
• Hutchinson Telecom (HTX) Raised to Buy at Citigroup.
• KLA-Tencor (KLAC) Raised to Overweight at HSBC.
• O’Reilly Automotive (ORLY) Raised to Overweight at JPMorgan.
• Tessera Technologies (TSRA) Raised to Outperform at FBR.
• Yamana Gold (AUY) Raised to Outperform at RBC.

JON C. OGG
August 20, 2008

USEC (USU) drops on high costs and plant closings. Sells off to $6.41 from 52-week high of $25.65.

Raymond James Financial (RJF) says market conditions are getting worse. Stock down to $23.65 from 52-week high of $37.60.

Tessera Technologies (TSRA) has patent lawsuit slowed up by ITC. Runs off to $22.15 from 52-week high of $46.43.

Healthways (HWAY) cuts outlook for this years. Shares move down to $28.43 from 52-week high of $71.22.

Douglas A. McIntyre