Seeking Alpha article
Summary
Worlds has a Markman hearing coming up against Activision Blizzard.
Markman hearings represent significant catalyst events for investors.
Through trading before the October 3rd hearing, investors could be set up for substantial gains with limited downside.
One of my favorite ways to invest is to invest in market moving events. In regards to market moving events, I usually focus on pharmaceutical stocks, however, I believe that I have found another opportunity for investors that should be very interesting. Markman hearings are make or break moments in patent litigation. It is where the judge rules on whose claim construction is going to be used in the upcoming trial. Needless to say, the plaintiff wants a broad claim construction, which would increase the chances of a finding of infringement. The defense wants the exact opposite and would like to see the patents defined as narrowly as possible, which would help to mitigate the chances of the plaintiff being able to prove infringement.
In regards to Markman hearings, if you are interested in how Markman hearings impact stocks please click here to view a previous article that I wrote on the matter. In this case there is only one company that I want to profile, Worlds Inc (OTCQB:WDDD). Worlds is locked in a patent infringement battle with gaming juggernaut Activision Blizzard (NASDAQ:ATVI). Worlds holds patents regarding the interaction of players in massively multiplayer online games. These patents cover the development and interaction of three dimensional environments in Massively Multiplayer Online Role Playing Games (Abbreviated: MMORPG), and Worlds believes that Activision's popular Call of Duty and World of Warcraft games infringe upon these patents. Worlds has asked the court for a jury trial and unspecified damages. Needless to say, the cost to Activision could be very large should Worlds ultimately prevail in its litigation, as Call of Duty and World of Warcraft are two of the top selling video game franchises of all time. Worlds could also then go after other video game makers who are using similar techniques as Activision, which would be extremely profitable for Worlds' shareholders.
Worlds has a Markman hearing set for October 3rd. This Markman hearing will be crucial to Worlds shareholders, and a negative opinion could crush the stock and be a serious blow to investor confidence in the ability of Worlds to execute its patent litigation strategy. With the importance of a Markman hearing in patent litigation, it is likely that Worlds will see an increase in investor attention and also an increase in shareprice heading into the catalytic event.
Additional Information on the Dispute
Worlds has fought hard to get up to this point. The case was delayed, as the judge had to make a ruling finding the patents valid. There was a question regarding some of the continuation patents under litigation, as they did not exactly meet the standards of the US Patent and Trademark Office. After being issued a certificate of correction, and the judge finding for Worlds, the case was able to move forward towards a Markman hearing. As I mentioned above, Worlds is facing a giant company in Activision Blizzard, claiming that two of Activision Blizzard's games infringe on its patents. Worlds is being represented in the lawsuit by one of the best firms in the patent industry Susman Godfrey LLP, which agreed to take some of the case on commission. The company is solely focused on this litigation, and with this in mind, lets turn towards the Markman hearing, and why this hearing is going to be so important for the case.
Strategy For Trading Markman Hearing
I have a rather simple strategy for investors to capitalize on the momentum that Worlds is likely to see ahead of the Markman event. We know that the hearing is to take place on October third, so any investor attempting to capitalize on the catalytic event should be out of their position by October second, as it is not clear if World's stock will be halted on October 3rd for the Markman hearing. As an investor I like to plan for the worst which is why I would be out well in advance of the Markman hearing. Why do we sell ahead of the hearing? We are limiting downside. Should this hearing be negative for Worlds, it is very likely that the stock will drop substantially in share price. While investors are also losing on any upside should the hearing be positive, we are able to mitigate risk. The increase in share price and attention ahead of the Markman hearing will help to provide shareholders with a substantial return while limiting the downside in the stock.
Risks
Trading based solely on catalysts has a number of risks that investors should be aware of. The main risk would be that it is possible that other events will affect the stock that are not related to the catalyst. I do not see this being an issue going into the Markman hearing, as Worlds is almost completely focused on the patent litigation versus Activision.
Worlds itself comes with risks. The stock is a penny stock and is thinly traded. This could present liquidity concerns for investors, so investors trying to capitalize on this catalyst will want to be careful to make sure that they do not buy so much that they are caught holding onto the stock heading into the catalytic event. Furthermore, Worlds has a history of net losses and should they lose this patent litigation will likely be worth very little money. The company has no other assets than these patents, and will does not have enough revenue to sustain itself for the long term. The company also does not have any other litigation that it is currently pursuing, so a loss to Activision could have a profoundly negative impact on the stock. Investors should note that I am not advocating a long term position in Worlds stock, I am just advocating taking a position with regards to this specific catalyst.
World's Operations
Worlds came to its current form when in 2011, it spun off all of its operational assets and decided to focus solely on patent litigation. The company currently since its inception has faced large periods of losses, and the shift to patent litigation has not yet driven substantial revenue for the company. While investors might believe that Worlds has the potential to generate substantial revenues from Activision, so far it has been unable to generate any revenues.
Conclusion
Investors could stand to profit off of Worlds' Markman hearing. With the additional hype surrounding Worlds, it is likely that investors will see an increase in share price heading into the Markman hearing. Through selling before the actual catalyst event though, investors should also be able to limit their downside, as they will not be holding for the long term.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
