Schweitzer-Mauduit Shares Surged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of cigarette-paper specialist Schweitzer-Mauduit International (NYS: SWM) were smoking hot today, gaining as much as 20% in intraday trading after the announcement of a licensing agreement with competitor delfortgroup.

So what: SWM has been in a prolonged legal battle with delfortgroup as well as other major competitors over the validity of some of SWM's patents involving lower ignition cigarette papers. The agreement with delfortgroup is a very big deal since it represents the concession of one of the chief parties in the squabble.

For SWM, the win is twofold. First, the company will get licensing income from delfortgorup, which will consist of a minimum of $4 million in royalties per year for the five years starting in 2011 as well as a payment related to past sales. Additionally, the settlement hints at the strength of SWM's patents and may discourage other competitors in continuing their challenges.

Now what: When it comes to competitive advantage, when any company has a proprietary product or process that legally can't be copied by other companies, they're in a pretty darn good position. SWM's agreement with delfortgroup should be very good news for investors because it underscores the company's strong position in the industry. Is the announcement alone enough to buy the stock? Probably not, but it could be a good reason for investors on the sidelines to take a closer look.

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At the time this article was published Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

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