For Tessera, Investors Focus on the Wrong Fights

Implications: Tessera's stock has been thoroughly trashed the last five weeks, in large part because the investment community saw one of TSRA's ITC cases temporarily derailed.  The next few days should bring a reprieve with respect to the ITC; but the real action is happening elsewhere in Washington: in publicly available filings at the Patent Office.

Analysis: Tessera has been hammered the last few weeks. 

The bad news started when the Patent Office called into question one of six Tessera patents that are currently under re-examination at the Patent Office.  Then, hearing that news, an Administrative Law Judge at the ITC decided to stay an inquiry that was otherwise within a few months of delivering an expected big win for Tessera. (After that, a few more patents fell, and away we have gone.)

The ALJ's decision presumably hurt the stock for two reasons.  First, the delay itself means that it is possible that Tessera will not be able to pursue the case at all.  That patents in the case expire within two years, and the delay could run longer than that.  Second, the fact that the ALJ took the patent news so seriously made the market think that the patent news was in fact that serious. 

That last step is the one that I want to focus on.  Obviously, the ALJ's views are important and should be influential.  However, as we have seen in recent filings at the ITC, the ALJ's analysis of the patent situation was far from perfect.  He had to do his work in roughly 24 hours, and he does not have much background in how the patent re-examination process works.  All this makes it likely that his decision to stay the case will be overturned; but, more important, it should make everyone reluctant to rely too heavily on the ALJ's interpretation of the Patent Office events.

Is there another option?  You bet.  The patent office makes public all the documents in all six files; so, right now, anyone can read the details and see exactly why these patents are being beaten up and exactly how Tessera is preparing to respond to the problem.  Tessera's licensing partners and litigation adversaries are all sophisticated firms who are surely doing exactly that, and indeed using that information to guide their decisions about litigation and settlement and contract renewal. 

My point here is simply that the investment community likely should be engaged in that same detailed analysis; because the real value of Tessera turns on what happens to its patents in general, not merely what temporarily happens to two of its patents at the ITC.