Wednesday, February 18, 2009

The $360 Million-Dollar Door Ding

Obviously, I couldn't begin to put a per-share value on the suit without some idea as to the value of the suit itself. To do that, I needed to know more about the cars with pirated WordLogic software. A lesser professional would have gone to the web, not me. Driven by the dedicated, relentless Southern California work ethic so closely associated with sleepy beach towns, I left work a little early (10 a.m.) to visit Mercedes-Benz of Laguna Niguel (the eleventh largest M-B dealer in the world) because I didn't want to chance a slow Internet connection. To save time, I also chose an uber-fast car to test drive: A race-inspired, "Silver Arrow"-colored 2009 AMG SL63. With a 6.2 liter, 525 HP V-8 motor tied to a seven-speed gear box, it can do zero to 60 in 4.2 seconds, has a top speed of 155 MPH (limited by an electronic "governor"), and is therefore worth every penny of its $152,665 price tag. That sounds like a large sum of money until you realize that M-B of Laguna Niguel sports a lavish "Customer Comfort" area with sumptuous leather chairs to sit in while you rest your wallet and sip complimentary Starbucks coffee as they hand wash your car ... any time you want ... free. So, it all works out. Right? Right! Opulent dealership set-ups such as this - coupled with seriously flawed logic patterns of car guys such as myself - enabled Mercedes-Benz to sell 1,034,700 automobiles in the first 11 months of 2008. December will be reported shortly and raise the figure a bit, but let's just say they are doing one million cars annually. Of those, Andre, my salesman, said about one-third are of the S-Class variety (which are the models with the COMMAND System as standard equipment), suggesting that over 300,000 M-B cars leave showrooms each year with WordLogic technology on board. That was the first number I needed to ascribe a value to the suit. Furthermore, in Mercedes cars that don't include it, the package with the COMMAND system option costs $2,950 additional - that being the second figure I needed. Until Tuesday morning (when the Company issued a news release covering this topic), I guesstimated that at least $200 of that $2,950 could/would/should have been paid in software licensing fees to WordLogic Corporation. Therefore, based on 300,000 Mercedes models sold annually with WordLogic software on board, and with that software worth at least $200, the infringement deprived WordLogic of something like $60 million each year. It was explained to me that, by law, the suit is allowed to go back two years, so that's $120 million in damages right there. However, since M-B knowingly ignored the patent and built COMMAND-equipped cars anyway, WordLogic is entitled to sue for three times that amount. That, according to my math is a $360 million "door ding" against Mercedes - and trust me, I'm good at math. Apparently, I'm a fairly good guesser, too: In the Tuesday news release I just alluded to, the Company said it is seeking "8.6 percent in royalties on the sales of the infringing product that sells for approximately $3,000 to $5,000 per car," and that "treble damages" apply to those models sold "in 2007, 2008, and 2009." Comparatively then, WordLogic's in-house formula equates to low-end damages of about $464.4 million. We'll play it conservative though and use my $360 million number as we compare it to the Company's capital structure. WordLogic has just over 30 million shares outstanding, meaning the suit, on a per-share basis, could deliver shareholders approximately $12 per share in cash. The stock is presently priced under a buck. Now it's your turn to do the math. Remember: Mercedes-Benz is two names, but it's just one company and this is just one patent infringement suit. Truth is, this patent is being blatantly infringed on daily - all over the world! How many devices incorporate predictive text messaging? How many other multi-billion-dollar corporate machines are running on this software? What might be the total amount of damages? Your guess is as good as mine, and I'm sure the aggregate numbers are probably far too large for any of us to believe.