Nanoco Group – what can we expect from Samsung’s historical US infringement

Nanoco Group plc

Nanoco Group plc (LON:NANO) this week released a breakthrough announcement confirming that the Eastern District of Texas Judge, Rodney Gilstrap, had lifted the stay of proceedings, thereby permitting a resumption of the ongoing legal actions against Samsung for alleged wilful IP violation.

Nanoco also detailed the outcome of the significantly oversubscribed Broker Option that formed part of its total fundraising announced on the 6th June 2022, that comprised a Placing, Subscription and Broker Option. Having indicated that the maximum number of shares to be issued would be 5% of the issued share capital immediately prior to the Fundraise, after scaling back oversubscriptions, the total raise amounted to £5.65m before costs of approximately £0.25m. FY2022 year-end cash is therefore expected to be between £7.0m and £7.5m, which is now expected to extend the Group’s cash runway into CY2025, well beyond the point that the Group expects the organic business to be profitable and cash generative.

A trial date is expected to be set for late-September/early-October, being preceded by a pre-trial conference on 16 August followed by jury selection on 16 September. The high level of sensitivity to this litigation, of course, had recently been reflected by Nanoco’s share price spiking more than 40% on news that the US Patent Trial and Appeal Board (‘PTAB’) had ruled in its favour on 17 May 2022 with respect of all 47 claims in the five patents that were subject to inter partes review (‘IPR’) for the case. At that time, its Board expressed a high level of confidence in the trial’s positive outcome and, although it never estimated a value of the potential award resulting from successful litigation, Turner Pope Investments research of 6th June 2022 suggested this could be in the range of US$200m to US$300m for Samsung’s historical US infringement alone.

Nanoco Group believes any damages it ultimately receives should reflect the value enabled by its IP. Based on no win, no fee litigation funding, the Board has agreed a risk reward sharing mechanism that would lead to c.50% of a ‘modest’ trial award being retained by the Group, rising to 80% for larger ‘wins’. From April, retailers in the US were offering Samsung’s latest second generation QD-OLED SB95 devices for sale at between US$2200 for the 55-inch model and US$3000 for the 65-inch, around double the price of similar premium, but not QD based devices. Assuming that Samsung’s US QD display sales totalled 25m units over the five years to end-2021, upon which it is realistic to estimate a low-end royalty payable to Nanoco in the range of US$8.0 to US$12.0 per display. This amounts to lost revenue in the range of USS$200 and US$300 million for the US alone. Although royalties negotiated might have been expected to taper with rising volumes, Nanoco’s annual take might nevertheless continue on a rising trend to the point of expiry of its various patents.

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