Why InterDigital Inc. Shares Collapsed

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 InterDigital  stabilized at a 7% loss at the closing bell Friday after suddenly collapsing by 12% in the afternoon. The sharp plunge occurred after news broke that InterDigital's phone-patent lawsuits against Nokia (the company's mobile segment is now owned by Microsoft ) had been rejected in court.

So what: InterDigital filed the lawsuit with the International Trade Commission, alleging that Nokia and Chinese phone maker ZTE manufactured phones that violated its patent for a method of improving wireless transmissions, and accusing ZTE of additional infringements as well. Samsung had been a party to the case but agreed to pay royalties last week. Only the judgment was publicized today,-- a final ruling by the full International Trade Commission is expected in October -- and the withholding of the full findings may make it difficult to build an accurate investing thesis around today's rejection. An earlier case against Nokia, ZTE, and Huawei was rejected late last year, and is on appeal.

Now what: InterDigital has tried three times to sue over smartphone patents since 2007, and this is its third loss. However, the two earlier lawsuits were not unqualified failures -- one was revived on appeal and one is still working through the appeals process -- and InterDigital CEO William J. Merritt  has said the company will appeal this one as well, if necessary.

InterDigital has generally been able to reach licensing agreements with phone makers, as most of its $325 million in revenue last year came from royalty payments. Nor is Nokia unfamiliar with licensing InterDigital's patents, as it paid $253 million in 2006 to settle earlier patent claims. These aspects of the case, and the fact that InterDigital's valuation is near its highest level in five years, should inspire caution in any bargain hunters who might think there's greater upside than downside left in this legal battle.

Are you ready for this $14.4 trillion revolution?
Have you ever dreamed of traveling back in time and telling your younger self to invest in Apple? Or to load up on Amazon.com at its IPO, and then just keep holding? We haven't mastered time travel, but there is a way to get out ahead of the next big thing. The secret is to find a small-cap "pure-play" and then watch as the industry -- and your company -- enjoy those same explosive returns. Our team of equity analysts has identified one stock that's ready for stunning profits with the growth of a $14.4 TRILLION industry. You can't travel back in time, but you can set up your future. Click here for the whole story in our eye-opening report.

The article Why InterDigital Inc. Shares Collapsed originally appeared on Fool.com.

Alex Planes has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. 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. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story