AMRON POST IT STICKY NOTE CASE COULD BRING 3M (NYSE:MMM) SHARES DOWN ~40.5%

AMRON POST IT STICKY NOTE CASE COULD BRING 3M (NYSE:MMM) SHARES DOWN ~40.5%

See Wall Streets' well respected Seeking Alpha Stock market Insights & financial analysis article here. 

Lack of investor confidence brings 3M shares down on recent February 10, 2016 news of lost (both in District Court and on Appeal) patent litigation for "inequitable conduct" at the patent office, and the current similar January 25, 2016 Amron Post-it note litigation.

"If Amron V. 3M and Fry ends in favor of the plaintiff, there could be another significant dip. Using the ratio of $26M paid out, to a stock decline of 2.63% - If 3M is found liable for the $400 million, logic and past information show the possibility of a ~40.5% decline". SEEKING ALPHA MARCH 5, 2016

ARTICLE

March 5, 2016 12:34 PM ET

By: Peter Sollecito

* 3M is facing a $400 million lawsuit for allegedly using inequitable conduct to secure one of their major patents.

* 3M recently had to pay out $26 million for a similar case, which most likely lead to a 2.63% dip over two days.

* Although 3M enjoys blue chip status, it is not immune to unforeseen legal risk.

* Price fluctuations may pose as buying opportunities for bargain pickers; in 3M's case the 2.63% dip rebounded nearly 6%.

The $400 Million Dollar Question

On January 25th, 2016 a disgruntled citizen filed a lawsuit against 3M (NYSE:MMM) In an attempt to settle an inventorship dispute that spans over 40 years. Alan Amron, self-proclaimed inventor of the "Press-On-Memo", has sued 3M and prior 3M employee Arthur Fry for first inventorship rights of the sticky note, as well as a possible breach of understanding that led to an agreement during a 1997 case regarding the same issue. According to Amron's complaint, 3M's version of the sticky notepad, now known as the, "Post-it? Note" is essentially the same product that he brought to commerce in 1974. Amron has sued 3M for $400 million to nearly $40 billion (estimated total gain from Post-it? notes) in lost revenue.

Amron first filed a suit against 3M in 1997 over inventorship, but settled because 3M notified him of a Swiss patent that predated both his and 3M's conception dates. Thus, 3M agreed to pay Amron's legal fees on the understanding leading to the agreement that neither Amron, nor 3M/Fry were the true inventors of the sticky note.

A recent breach of understanding that lead to the 1997 Court agreement has rekindled the fire for Amron, who believes he was duped in to settling the case quickly. Under United States Patent and Trademark Office (USPTO) Rule 56, if the Court rules that 3M's patent was obtained using inequitable conduct, 3M could be held liable to pay Amron all of the revenues they received from Post-it? Notes (and analog applications) over the years.

For an in-depth view of Amron's argument, see this interview. The official Court complaint can be accessed at Court.gov. 

Fool Me Once…

Interestingly, 3M recently lost a similar case over a patent gained through inequitable conduct. On February 10th, 2016 an appellate court reiterated from the first trial that 3M is liable for antitrust violations. 3M was found to have obtained a patent through inequitable conduct and subsequently sought to enforce it. As a result of 3Ms behavior in both acquiring and enforcing the patent, the appellate court awarded Transweb, LLC's Treble attorney fees which came to about $26 million. Read more about the case here; the official court document can be found here.

So What?

From February 9th-11th, 3M's stock took a considerable dip; down 2.63%.

However, the stock has since rebounded 5.77%.

If Amron V. 3M and Fry ends in favor of the plaintiff, there could be another significant dip. Using the ratio of $26M paid out, to a stock decline of 2.63% - If 3M is found liable for the $400 million, logic and past information show the possibility of a ~40.5% decline. Unless the lawsuit bankrupts 3M, which is hard to do to a company with more than $1.8 billion in cash alone on the balance sheet, a major buying opportunity presents itself in the temporary dip.

Don't Get Fooled Again

As for most slow-growing blue chips, the best return opportunities come from events that artificially drive prices too far one way or the other. For a company that does not grow much, a ~6% return looks marvelous, especially given the low-risk profile of a behemoth like 3M.

The point is: for the enterprising investor, lawsuits can bring major buying opportunities if timed correctly. Although Amron's case could do some major damage to 3M's stock price in the short term, those who choose not to follow the herd have an opportunity to buy/increase ownership of a blue chip at a potential discount to fair value. Mr. Market will most likely act how he has in the past; if and when he does, don't get caught on his bad side.

Happy investing.

Author's note: I am not a lawyer, nor do I claim to be one. I am merely using public information to support my claim that litigation can have a considerable effect on investor sentiment.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Time for a break.

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