I have been considering the Eagleview situation over the last 36 hours and my gut feel so far is that there is unlikely to be merit behind Eagleview's claims. In fact, I suspect the action taken by Eagleview is likely a positive signal for Nearmap, indicating that Nearmap has been sufficiently successful in the North American market that Eagleview feels it needs to act beyond simple competition.
I set out yesterday morning to answer a few questions:
1. Is there likely merit to Eagleview's claims?I believe the answer to this is "no". I am not a patent examiner nor IP lawyer so I am basing this on the following facts:
Knowing the above, I can only think of two reasons Nearmap has developed and continues to grow its roof geometry service. The first is that they did so in full knowledge that Eagleview would likely come after them at some point (this is confirmed in
SA1588's post above) and that they are comfortable they have implemented their roof geometry product in a way that does not infringe on Eagleview's IP.
An alternative, more cynical view, is that Nearmap went ahead with the roof geometry business either negligently, or with a cavalier attitude, or simply out of desperation to replace the Verisk business.
I'm discounting these 3 possibilities because prior to acquiring Nearmap, the Ipernica business specialised in IP assertion (more commonly referred to as patent trolling). Ross and Rob were both part of that business so they are well aware of how it works. I also feel that I know Rob well enough to know that he is not negligent, nor cavalier, nor a short-term thinker. He has been with Nearmap since its beginning in 2008, and the multi-year, multi-million dollar investment in Nearmap's ML/AI products which has been slow to generate revenues thus far is proof that this is not a short-term thinking business. Nearmap continues to expand that team today (as proven by the job ads Birdman frequently finds).
2. If there is not merit in Eagleview's claims, then what are Eagleview's motivations?I think the filing is a sign that Nearmap is taking share from Eagleview. Eagleview is frustrated by this, and even if they fail with their patent claims, they can cause reputational damage to Nearmap in the meantime. This case could drag on for years (a reminder again that Eagleview vs Verisk played out over 4 years), and during that time you can bet that Eagleview's sales folks will be out in the market warning every customer that Nearmap may not be able to provide ongoing service if Eagleview wins its case. Furthermore, there is likely information that Eagleview can learn from Nearmap during the legal process (i.e. how Nearmap has implemented its roof geometry service).
From Eagleview's POV, even if they ultimately lose the case, there are benefits to running it, and presumably they have decided the benefits outweigh the legal costs.
Slide 11 of Nearmap's most recent presentation indicates the roofing business is ~US$3m ACV. If Eagleview can cast sufficient doubt and potentially win some of that back or prevent further losses to Nearmap, and have the opportunity to look inside Nearmap, it seems a sensible move on their part.
3. What action should I take?I come to the conclusion that the action by Eagleview is entirely rational on their part, despite it likely having no merit.
I think what this means in the short term is there will be cost incurred by Nearmap to defend itself, as well as potentially more difficult sales in the roof geometry related sectors which is clearly negative.
In the medium term, I think this case actually tells us that Nearmap are onto something good and we simply need to wait for the case to play out, I believe in Nearmap's favour.
Therefore, as a long term investor, I will do nothing. I considered selling to avoid some of the paper losses that are very likely in the short term, however the issue with that is I like the business in the medium-long term. Suppose I sold at $1.85 today, what would be my signal to re-enter?
The market reaction is to perceived risk. When does that risk expire? There are a multitude of possible outcomes - Eagleview could simply drop the case 3 months, 6 months, 15 months from now. Or it could drag on for years.
My position on timing is simply don't. I only hold 3 high conviction shares so for me the appropriate strategy right now is simply do nothing, on the assumption that this will resolve positively in the medium term.
If one was to have a little faith in Rob and team, one might think that they would have anticipated this and considered how to deal with it when it happens.
