Wondering how many folks saw the SA article about Mitek Systems (MITK) and it’s patent dispute with Rothschild Mobile Imaging Innovations, LLC (RMII), and what they thought about said article:
http://seekingalpha.com/article/3964127-avoid-mitek-systems-….
The key takeaways from the article are:
-The results of an IPR review (Inter partes review is a trial proceeding conducted at the Board to review the patentability of one or more claims) will be known April 19th.
-RMII expects to be victorious against MITK and the named defendant banks that use MITK’s products, such as JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., and Wells Fargo & Co.
-MITK has apparently agreed to indemnify the banking defendants and is potentially on the hook at a trial or in a settlement for damages for all of its users.
-Per the author, Given the size of those customers (which are essentially all of the top 100 banks in the United States) and just how many checks they have processed in the past several years, any settlement on the many hundreds of millions of checks Mitek processes annually for its thousands of banks would be significant to a company of such small size. Indeed, Mitek had an excellent quarter for its most recent quarter but only created 1 million dollars in cash flow. Therefore, even a settlement of just several million dollars, while not a vital threat to the company’s existence, would be enough to erase the cash flows of 2016.
Thoughts
I opened a position in MITK on 3/18 and it has appreciated 2.3% in that short time. It’s future looks very bright, however, this is obviously a concern, at least for the short term, especially given that the amount of potentially damage to MITK is unknown.
How much has MITK accrued for this potential loss? Full disclosure: I have not investigated this yet, and the author does not mention whether MITK has or not. Given that this has been out there since 2014 when RMII initiated it’s suits, proper accounting rules would require MITK to book a contingency based on best estimates.
The author also mentions that this could purely be a strategy on RMII’s part to put pressure on MITK, who must have some conviction that they will win since that have refused to negotiate per RMII’s PR.
What do you guys think?
Cheers,
MJ