As technology booms, there will be no shortage of companies seeking IP rights to inventions. But innovation doesn’t only happen in technology, and it’s not the only arena in which patents can be applied.
Spherix Inc (NASDAQ:SPEX) has recently announced an agreement to acquire 222 patents from North South Holdings, which covers a wide range of growing industries. The Harris portfolio also has applicability in law enforcement communications, military, and homeland security – all areas where government spending is at an all time high.
Spherix Inc (NASDAQ:SPEX) is acquiring the company and its portfolio for roughly $82.4 million based on the $6.87 closing price of Spherix the day prior to the transaction letter. The current CEO of the company, Anthony Hayes, will become the CEO of Spherix once the merger finalizes, replacing the interim CEO, Harvey Kesner, at the end of August 2013.
Hayes is an accomplished lawyer with bar memberships in several states, a juris doctorate, and several years’ experience in litigation and patent commercialization. He personally led his firm through several ‘buy-and-flip’ patent deals that generated triple-digit returns.
Clearly, this leader knows how to monetize a patent. With past deals achieving a remarkable gross return between 200% and 400%, I find little evidence against his ability. Moreover, I agree with the recent assessment that Spherix Inc (NASDAQ:SPEX) could be the next ‘Vringo’.
According to the analyst:
Spherix has been a small company with minor business operations. Now it becomes an idyllic shell for merging in an IP portfolio. Next step: complete the merger and announce the high-profile lawsuit.
With the broad appeal of Vringo, the recent success of ParkerVision, the track record of Iroquois Capital and Hudson Bay, and lots of IP investors looking for the next real IP play… Spherix is the next play.
Spherix has total cash of $3.45 million and no debt. The company held no patents before its recent deal with Rockstar, but the merger with North-South Holdings will bring in a portfolio of 222 patents acquired from Harris Corporation, along with $2 million in cash. The stock has jumped over $4 since last week (ending July 26, 2013).
Summary
While the possible benefits and financial rewards of patents can hardly be overestimated, there are several pitfalls investors should be mindful of. The risk that a key patent could be found invalid, either following a legal decision or simply as the result of a rumor or attack, or patent claims that are not broad enough to prevent the emergence of non-infringing alternatives are big risks that are often costly.
That being said, the four companies listed above know what they’re doing. As long as Apple continues to innovate and apply for patents, there will be reason to invest in the company. Investors should watch the Vringo v. Google case closely for any new developments. In the case of Anthony Hayes and his track record, I see him using the “Vringo” model, and whatever these patents are that Spherix is getting, I am confident Hayes will achieve maximum profitability.
Bill Edson has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Bill is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article 3 Patent Stocks to Buy and Hold Long-Term originally appeared on Fool.com and is written by Bill Edson.
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