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Friday, 16 January 2015

GoPro and the Apple patent: buy on the rumour, sell on the fact?

Except for areas such as pharmaceuticals, chemicals, and chemical processes, the granting of a one-off patent is usually not a market-moving event. One need only think of telecoms, semiconductors and the like, where multiple patents are the norm, patent hold-up is the problem, and cross-licensing is the solution. An extreme expression of this is the observation by the innovation guru (and open source advocate) Professor Eric von Hippel from MIT, and his colleague, Georg von Krogh:
"[W]ith a few exceptions, innovators do not believe that patents are very useful either for excluding imitators or for capturing royalties in most industries".
The upshot is that only in limited circumstance will a single patent make much difference. But Apple, it would appear, is not most industries. Consider this week’s grant to Apple of a patent in the digital camera system area (U.S. Patent No. 8,934,045) and the apparent impact of this announcement on the stock price of another company viewed as a leader in a segment of the current market. Thus shares in GoPro slipped more than 13% after the announcement on January 13 that Apple had been awarded a patent for a remote-control camera system, including an illustration of portable digital camera controllable via a wrist-worn remote. First reports treated the patent as the fruits of Apple R&D and was taken to signal Apple’s possible interest in entering the GoPro product space (although, on the date of the patent grant, Apple declined to comment on the matter). Later coverage pointed out that this patent was in fact one of a large number that had been acquired by Apple in 2012 as part of the high-profile sale of a large trove of Kodak patents (where the initial estimate of the trove for over two billion dollars morphed into an ultimate sales price slightly more than five-hundred million dollars).

First a word about GoPro. The company is the world’s largest manufacturer of wearable cameras, popular with surfers and skiers alike, where the sports person can visually record his or her exploits. GoPro went public in June 2013 to much fanfare and it has seen its share price double from the public offering price of $24 a share. More recently, the share price has seen greater volatility. Moreover, the company is still dealing with how to create a successful business around the posting online of such sports exploits by users of GoPro devices. However, the decline in price reported above was attributed to the announcement of the Apple patent, in large part because the market apparently viewed the patent as signalling Apple’s interest in entering the action cam field currently dominated by GoPro.

But more reflective observers expressed reservations. As reported on Bloomberg.com, one analyst, Charlie Anderson, with Dougherty & Co, cited the data point that in fiscal 2014, Apple had sold more than 270 million units of its products. Given this, Anderson opined:

“GoPro has done well, but we’re talking about four million units and $1 billion in revenue in the past year. Apple doesn’t do things with single-digit millions of units in mind.”

More likely, in his view, Apple would make use of the remote capability covered by the patent to improve certain photo settings on iPhone or iPad products.

In a somewhat similar vein, Mikey Campbell, writing for AppleInsider, observed:
“If Apple is seriously considering a foray into the action cam market, a patented solution would almost assuredly come from within Cupertino. As it stands, the Kodak property could be used toward technology related to existing products, perhaps as a functional augmentation to the upcoming Apple Watch.”
GoPro has been a volatile stock, such that no one can claim that the large swings have been due to solely to the announcement about the Apple patent. For instance, on January 5, 2015, the stock price opened at $67.60 and closed at $60.84, while on January 13, 2015, it opened at $57.06 and closed at $48.58. This suggests that GoPro shares may be particularly prone to sharp price movements. Nevertheless, the power of the Apple brand in tandem with the announcement of the grant of a single patent, without any additional comments by Apple itself, seems a special case.

It is often said on Wall Street that “one buys on the rumour and sells on the fact.” Here, the “facts” underlying the sell-off of the GoPro shares were partial and, at the outset it would seem, not entirely correct, meaning that the sale of the GoPro shares was as much about rumour and speculation as fact. One function of patents is to signal (mis-signal) the intentions of the patentee. Rare it is, however, that the signalling impact of a single patent in the field of cameras and camera functionality could have such a dramatic effect on the share price of another company. Ultimately, what is at play here is not technology but the power of a brand. And no brand does it better than Apple.

1 comment:

Thomas Dubuisson said...

Thanks for sharing. Great article!

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