The Nearmap Ltd (ASX: NEA) share price has tumbled by as much as 18% today on news of a lawsuit. Here’s my take on the future of the Nearmap share price.
NEA share price
Uphill battle
A US-based competitor, Eagle View Technologies has alleged patent infringement relating to its roof-estimation technology. This technology is used to estimate the costs of roof repairs, construction and insurance.
Eagle View believes Nearmap’s rooftop aerial measurement products, including its OpenSolar and MapBrowser infringe eight patents.
CEO and Managing Director of Nearmap, Rob Newman has advised the allegations are without merit and will vigorously defend against the complaint.
Now we know the company will fight tooth and nail, the next and most difficult question to answer is, who will win?
Thinking in probabilities
Investing involves a lot of forecasting like calculating discount cash flows, identifying growing markets and future inflection points.
I forecast by taking a probabilistic approach and processing all the relevant factual information to arrive at the probability of a potential scenario or outcome.
In this matter, there appears to be historical evidence of Eagle View successfully upholding 149 of its patents even after numerous appeals.
Most recently, Eagle View successfully filed a lawsuit against rivals, Xactware and Verisk for their infringement of its patents covering key technologies. The U.S District Court awarded $125 million in damages to Eagle View.
And in February 2021, things got worse for Verisk as the Court increased the damages to $375 million due to improper conduct like failing to undertake remedial action and maintaining they did nothing wrong throughout the case.
My thoughts
Investors should also be mindful of the potential pitfalls from reasoning through analogies like the one above.
Whilst the aforementioned case may appear similar, it does not necessarily mean it will result in a similar outcome for Nearmap.
In saying this, I think that Eagle View’s previous track record does make it much more challenging for Nearmap.
In such situations where you may need a high level of technical expertise to not only understand the actual roof-estimation technology but also patent legal knowledge, I tend to find other businesses that are within my circle of competence.
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