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Nearmap Gets Sued for Patent Infringement
Crocodile Dundee: Like Nearmap, he was baffled about how to navigate in America.
May 6, 2021
After denying there was any problem, Nearmap (NEA ASX) has now been locked out of 65% of its U.S. sales by an ironclad patent challenge. After paying heavy damages, Nearmap is unlikely ever to be profitable in the U.S. It will mean losing 39% of total revenue and all of the company’s growth. If Nearmap survives, it will return to the small Australian market, where it is losing share.
When the news of the lawsuit broke, Nearmap said “The business remains unaffected.” The market begs to differ: share price fell by nearly 25%. Australian regulators had halted the stock as soon as we issued our February 10 report warning that this would happen, allowing the company to publish a non-response and push up the stock when the market re-opened. Investors lost out. Insiders won: Non-Executive Chairman Peter James made another AUD$809,497 from selling shares on March 15.
Nearmap upgraded profit guidance after closing on May 4, and shares rose 15% the next day, before the news broke. Eagleview filed its case sometime during the U.S. day on May 4, 2021. Why didn't management request a trading halt before the open at 10 am in Sydney? Six million shares traded before the halt.
If investors are to recover any value, they need to confront management with tough questions:
U.S. competitor EagleView filed a lawsuit in Utah against Nearmap on May 4, 2021 claiming infringement of their patents for roof estimation, impacting EagleView sales in the insurance, solar, construction, and government sectors. This litigation revists EagleView’s successful action against Exactware. Initially required to pay $125 mln in 2019, Exactware appealed, lost, and had the damages trebled to $375 mln plus costs estimated at $50 mln because the infringement and litigation were considered willful and vexatious.
EagleView is relying on two key patents that protect the display of aerial roof estimations and the process for calculating roof measurement. These two patents are particularly broad in their definition. It does not really matter what process a competitor uses to generate a roof measurement and display: the fact that they do it at all is sufficient to infringe on EagleView’s rights.
We expect Nearmap to counter by saying they don't produce roof reports and their methodology is sufficiently different. Nearmap will likely claim it uses digital surface models (based on 3D modeling). Our research indicates this method is inaccurate and that it is likely that Nearmap has been relying on a methodology similar to EagleView's. Nearmap has made a clear decision to fight the complaint so we believe the middle path of a negotiated settlement where Nearmap agrees to say pay a royalty to EagleView is out of the question. Expect the two parties to expend around $50 mln to slug those details out. EagleView is now armed with a court-tested patent from the Exactware case.
We expect EagleView to easily defeat Nearmap in court. Should Nearmap lose they will be shut out of the $120 mln roof-measurement market and segments of the government sector. Without those sectors, Nearmap will struggle ever to make a profit in the U.S. We believe that Nearmap failed to disclose its patent-infringement risk. Our interviews suggest that Nearmap was aware of the risk of an EagleView patent-infringement action as early as 2019. We learned in interviews that:
When the news of the lawsuit broke, Nearmap said “The business remains unaffected.” The market begs to differ: share price fell by nearly 25%. Australian regulators had halted the stock as soon as we issued our February 10 report warning that this would happen, allowing the company to publish a non-response and push up the stock when the market re-opened. Investors lost out. Insiders won: Non-Executive Chairman Peter James made another AUD$809,497 from selling shares on March 15.
Nearmap upgraded profit guidance after closing on May 4, and shares rose 15% the next day, before the news broke. Eagleview filed its case sometime during the U.S. day on May 4, 2021. Why didn't management request a trading halt before the open at 10 am in Sydney? Six million shares traded before the halt.
If investors are to recover any value, they need to confront management with tough questions:
- JCap said that the Eagleview camera system is twice as efficient as Nearmap’s. Is this true?
- If Nearmap has good technology, why is the company redesigning its camera system?
- Is Nearmap losing market share in Australia and New Zealand?
- Why, after seven years in the U.S. market, does Nearmap not lead in at least one segment?
- What is the company’s future in North America?
U.S. competitor EagleView filed a lawsuit in Utah against Nearmap on May 4, 2021 claiming infringement of their patents for roof estimation, impacting EagleView sales in the insurance, solar, construction, and government sectors. This litigation revists EagleView’s successful action against Exactware. Initially required to pay $125 mln in 2019, Exactware appealed, lost, and had the damages trebled to $375 mln plus costs estimated at $50 mln because the infringement and litigation were considered willful and vexatious.
EagleView is relying on two key patents that protect the display of aerial roof estimations and the process for calculating roof measurement. These two patents are particularly broad in their definition. It does not really matter what process a competitor uses to generate a roof measurement and display: the fact that they do it at all is sufficient to infringe on EagleView’s rights.
We expect Nearmap to counter by saying they don't produce roof reports and their methodology is sufficiently different. Nearmap will likely claim it uses digital surface models (based on 3D modeling). Our research indicates this method is inaccurate and that it is likely that Nearmap has been relying on a methodology similar to EagleView's. Nearmap has made a clear decision to fight the complaint so we believe the middle path of a negotiated settlement where Nearmap agrees to say pay a royalty to EagleView is out of the question. Expect the two parties to expend around $50 mln to slug those details out. EagleView is now armed with a court-tested patent from the Exactware case.
We expect EagleView to easily defeat Nearmap in court. Should Nearmap lose they will be shut out of the $120 mln roof-measurement market and segments of the government sector. Without those sectors, Nearmap will struggle ever to make a profit in the U.S. We believe that Nearmap failed to disclose its patent-infringement risk. Our interviews suggest that Nearmap was aware of the risk of an EagleView patent-infringement action as early as 2019. We learned in interviews that:
- EagleView sent letters to insurers to advise them Nearmap was potentially infringing their patent.
- Nearmap staff were restricted in bidding for federal contracts as there was the potential for patent infringement.
- According to a former senior manager at Eagleview, “Eagleview’s lawyers issued warning letters to insurers that Nearmap infringes its copyright.”
- Nearmap has carefully structured business relationships with third parties to attempt to avoid patent infringement.
- Nearmap has indemnified clients for patent infringement in order to do business with them.
J Capital is short Nearmap Ltd. (NEA AX)
On February 15, Nearmap published a response to our report. They failed to refute any of our allegations. See our response here.
Nearmap Ltd. (NEA AX) repeatedly assures investors it deserves a heady share price because of high growth and coming profits in the U.S. market. Actually, the company is laying off sales staff and offering discounts in a panicked attempt to improve margins, kneecapping its efforts to grow. Nearmap is apparently trying to hide its U.S. failure with accounting tricks to pull forward revenue. Without these maneuvers, U.S. revenue growth could have been half what was reported.
Nearmap turned up in the U.S. in 2014 with a unique product but failed to monetize it, and now competitors have speeded past. The company incurs twice the costs of the leading U.S. competitor to complete the same surveys and has a vanishingly small U.S. market share after seven years of trying. Its analytic technology lags far behind the competition. Sales to insurers, about 41% of the total, may be challenged in a potential patent dispute with key U.S. competitor. Throwing money at the problem isn’t helping.
The valuation and bull case for Nearmap are based on Nearmap’s assurance that it can replicate its Australian success in the much-larger U.S. market. The reality is that losses are widening, gross margins are going backwards, and competitors are crushing them. We spoke with five competitors, seven former employees, and 17 clients or prospective clients and learned that Nearmap has failed to succeed in any key sector in the U.S. Expect more losses and more hype about the prospects in the U.S. when the company reports H1 FY 2021 on February 16.
Nearmap turned up in the U.S. in 2014 with a unique product but failed to monetize it, and now competitors have speeded past. The company incurs twice the costs of the leading U.S. competitor to complete the same surveys and has a vanishingly small U.S. market share after seven years of trying. Its analytic technology lags far behind the competition. Sales to insurers, about 41% of the total, may be challenged in a potential patent dispute with key U.S. competitor. Throwing money at the problem isn’t helping.
The valuation and bull case for Nearmap are based on Nearmap’s assurance that it can replicate its Australian success in the much-larger U.S. market. The reality is that losses are widening, gross margins are going backwards, and competitors are crushing them. We spoke with five competitors, seven former employees, and 17 clients or prospective clients and learned that Nearmap has failed to succeed in any key sector in the U.S. Expect more losses and more hype about the prospects in the U.S. when the company reports H1 FY 2021 on February 16.
FEATURED REPORTS
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NG TSXPipe DreamFor the last 15 years, NovaGold’s management team has systematically misled investors with subjective presentation of information about a deposit so remote and technically challenging that the mine will never be built. Over those years, they’ve been treating this 12-person concept company like an ATM, awarding themselves base salaries that rival those of the CEOs at Newmont and Barrick and total compensation packages comparable with those at Rio and BHP. If the information from the company’s feasibility studies were presented in a more honest light, investors would understand that the Donlin deposit, of which they own 50%, is not feasible to put into production at any gold price.
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Champion of Stock Promotes |
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TPIC US
We Are Long TPIC! |
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CBAK USThe Undead: Why CBAT Has Zero Value
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Ideanomics (IDEX) (formerly Seven Stars Cloud Group, Inc. and before that WeCast and before that You on Demand Holdings and before that China Broadband) is a zero. The company changes its name and promotional story so frequently that it’s hard to keep up. One thing remains a constant, despite all the press releases, buzzwords and hype: shareholders get wiped out.
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We believe TPI Composites (TPIC) presents an interesting opportunity to own a business inflecting toward profitable growth with optionality on electric vehicles. In its core business, we believe TPIC may grow EBITDA by 250% over the next two years, propelled by strong demand for new wind turbines. Out beyond two years, demand for offshore wind–where the World Economic Forum predicted an 18.6% CAGR before factoring in Biden Administration programs—is likely to turbo-charge growth and profitability. While we have yet to see results from the EV business, TPIC has secured multiple contracts with automakers including Proterra and Workhorse, and, unlike many of the EV scams with little substance, possesses key EV expertise in composite manufacturing.
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CBAK Energy Technology Inc. (CBAT) represents the barely re-animated corpse of CBAK, a Chinese reverse merger that lost all its manufacturing assets to default in 2014. In 2015-16, CBAT raised $113 mln from investors to build new factories—and, we will show, appears to have simply taken a lot of that cash.
History is repeating itself. CBAT appears to be on the brink of another default. CBAT “is about to go bust; the factory director already ran away,” said a recently departed engineer on the phone with us. “It’s all along been half dead, half alive, mainly relying on the parent company for cash injections to stay alive.” |
Cartoon by Johannes Leak
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Opinions are intended to provide insight on macroeconomic issues and commentary is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy.
Investments involve risk. The value of investments can go down as well as up, and investors may not get back the full amount invested. The information contained in these reports has not been reviewed in the light of your personal financial circumstances. Reliance upon the information is at your sole discretion.
The reports and other commentary displayed are for information purposes only and should not be relied upon as investment advice. The information provided is not a complete analysis of every material fact regarding any country, region, or market. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of the date of this posting and may change without notice.
Opinions are intended to provide insight on macroeconomic issues and commentary is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy.
Investments involve risk. The value of investments can go down as well as up, and investors may not get back the full amount invested. The information contained in these reports has not been reviewed in the light of your personal financial circumstances. Reliance upon the information is at your sole discretion.