QPSX given legal setback in Germany

QPSX may be forced to raise new capital after suffering a second setback in its efforts to extract multi million dollar royalties from global telecommunications companies.

Analysts believe the legal setbacks are a major blow to QPSX’s technology commercialisation strategy.

The change in sentiment is reflected in QPSX’s share price, which has plunged from 45 cents to as low as 18.5 cents in the past week.

The trigger for the fall was a ruling by the German Federal Patent Court, which said QPSX’s patented Segmentation and Reassembly (SAR) technology could not be maintained over the “prior art” cited by Deutsche Telekom.

QPSX managing director Graham Griffiths said the case turned on a single document prepared by a German academic in the early 1980s.

He said the ruling contrasted with the decision by patent offices in the US and other countries to grant QPSX the SAR patent after lengthy enquiries.

The German ruling could adversely affect a separate action in the Munich District Court, in which QPSX is claiming DM125 million from Siemens and Deutsche Telekom for infringement of its SAR patent.

QPSX was hoping successful legal action would encourage other users of the SAR technology to negotiate licence agreements, resulting in potential revenue “in the hundreds of millions of dollars”.

The strategy appeared to be working last year when QPSX signed a licence agreement with Ericsson.

However, QPSX has subsequently taken legal action against Ericsson in the Federal Court of Australia, seeking damages for breaches of the licence agreement and trying to enforce the agreement.

QPSX said it continued to draw support from a Lloyds insurance facility, which provides a further $3.7 million to fund the litigation.

Patersons Securities analyst Robert Gee said the company also had about $2 million cash, which would be sufficient for another six months. Mr Gee said the litigation was unlikely to be resolved for 12 months.

The chances of a favourable outcome had diminished and even if QPSX was successful the payment of licence fees would be delayed.

Therefore, the company may have to seek additional capital or scale back some of its other activities.

This prognosis compares with the company’s prediction in February that it was “positioned for positive cash flows from licencing programs in the coming year”.

Mr Griffiths conceded revenue from the SAR program would be delayed but said QPSX had a range of other activities that could generate revenue.