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Wi-LAN shares jump on key legal settlement

James Skippen, CEO of Wi-LAN at his Ottawa offices Thursday May 31, 2007.

Jonathan Hayward/The Globe and Mail

Investors are hoping a bounce in Wi-LAN Inc. shares will be the beginning of a rebound after another setback for the patent licensing company earlier in the summer.

The stock jumped 7 per cent on Monday after the Ottawa-based company said it settled a patent dispute and dropped legal action against Alcatel-Lucent USA Inc. The U.S. telecom equipment giant has signed a multi-year licensing agreement with Wi-LAN.

Analysts say the agreement bodes well for a handful of other patent suits Wi-LAN has outstanding, with court dates fast approaching.

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"I don't think it would be a secret if I told people we've been in active discussions with other defendants and we are working towards settlements," Wi-LAN chief executive Jim Skippen said in an interview on Monday, adding there are no guarantees it will be successful.

Wi-LAN makes money buying and developing technology patents and then licensing them to some of the industry's biggest companies. It also takes legal action against companies it believes have infringed on its patents.

Some people refer to it and similar firms as "patent trolls" because of their willingness to go to court to extract fees from intellectual property, but Mr. Skippen takes exception to the term. "It's like someone steals from you and then gets to call you names."

Wi-LAN's business model has its risks. Its shares fell 33 per cent to a 52-week low of $3.27 on the Toronto Stock Exchange on July 15 after a jury in Texas rejected its patent suit against a handful of companies including Alcatel-Lucent. The stock has been volatile ever since. While Wi-LAN stock closed up 23 cents to $3.62 on Monday, it remains well below its 52-week high of $5.79 in September last year.

Wi-LAN was a tech darling during the dot-com boom, known for its once-revolutionary wireless technology that provided Internet access in hard-to-reach places. The stock traded around $90 in early 2000, before crashing below $9 later that same year. It has been trading below that level ever since, with the exception of a short-lived lift in July 2011.

The stock has been weighed down by the large amounts the company is spending on litigation, but many analysts believe the shares have been oversold since Wi-LAN lost the patent suit in July. According to Bloomberg, seven of eight analysts have a "buy" rating on the stock. Most like Wi-LAN's large licensing backlog, its strong cash balance and its juicy 4.5 per cent dividend payout, which is rare in the sector. Wi-LAN also has an active share buyback program.

Clarus Securities Inc. analyst Eyal Ofir called Monday's Alcatel-Lucent announcement "a significant milestone," for Wi-LAN, estimating the licence agreement is worth $5-million to $10-million per year over the five-year term.

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The settlement is also promising given that it comes two months after Wi-LAN lost a case in which Alcatel was a defendant.

"We are hopeful that this settlement is an indication of others to come," said Mr. Ofir, who has a buy rating on the stock and a $6.50 price target.

Canaccord Genuity analyst Robert Young said it's difficult to predict Wi-LAN's future trajectory because its growth hinges on the outcome of litigation. However, he believes the value of its contracts, its cash flow and its portfolio of more than 3,000 patents makes the stock attractive.

"And investors can get paid a dividend along the way," said Mr. Young.

The legal discussions mean that now is a good time to buy Wi-LAN shares, according to Stephen Takacsy, chief investment officer at Lester Asset Management, which has been buying the stock at its weaker points.

"This is an event-driven company. It goes up and down on news of settlements and lawsuits or the anticipation of," said Mr. Takacsy.

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Wi-LAN said two of the companies it's trying to reach an agreement with are Apple Inc. and HTC Corp. "We'd like to see settlements [there] if we can, too," Mr. Skippen said.

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