Snap Inc (SNAP) Lawsuit Says a Lot About Its Future

Will Ashworth

Updated Wed, Oct 11, 2017, 4:12 AM

You would think with all the negative press Snap Inc (NYSE:SNAP) receives from the business media, it would want to do almost anything to reassure investors that buying Snapchat stock isn’t a losing proposition.

Snapchat Stock Lawsuit Says a Lot About Its Future

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However, it appears that Evan Spiegel and the rest of the management team at Snap Inc. are tone-deaf, something I wrote about in July around the same time as the CEO’s wedding to model, Miranda Kerr.

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“From a business perspective, I have to wonder about their [Kerr and Spiegel] decision to put the photos on Instagram — one of the social media apps that could put Snap out of business, ultimately sending SNAP investors scrambling to buy FB stock, if they already haven’t,” I stated on July 18.

Apparently, this was a personal decision made by the couple, and you have to respect that. But now, just three months later, the company is entangled in a patent lawsuit with a small Canadian tech company that could become a major problem for Snapchat stock.

The Silence From SNAP Stock Is Deafening

Snap Inc. calls the patent infringement claims of Miami-based United American Corp (OTCMKTS:UAMA) groundless. It appears ready to ride out a legal battle to protect the good name of Snapchat’s Geofilters, an overlay that allows users to add digital stickers to a particular Snap.

If you’re unfamiliar with the dispute between the social media darling and tiny Canadian tech company, iFramed Canada Ltd., which was acquired by United American this past June, let me give you the abridged version of events.

About a year ago, the former owner of iFramed Canada filed suit against Snapchat in the Federal Court of Canada claiming it was infringing on its “geofencing” patents. Its lawsuit sought financial compensation from Snap Inc. for past infringement, and an injunction preventing Snapchat from infringing on its patents.

“We will not stand by and permit other companies or organizations, including Snapchat Inc. to exploit our proprietary technology,” iFramed’s Lawry Trevor‐Deutsch, Senior Vice President of Corporate Affairs, said in August 2016.

Not surprisingly, Snap had little to say about the patent suit.

“We generally do not comment on pending litigation, but believe these claims are meritless,” a spokesperson for Snapchat told the Canadian Broadcasting Company at the time.

Fast Forward to 2017

On October 4, United American received notification from the U.S. Patent Office that its patent application was accepted, and it will take further action against Snapchat.

“Issued under the trade name ‘iFramed’ the U.S. Patent Application Publication no. US 2016/0359987 was derived from International Application Publication No. WO2015/100496 filed December 30, 2014 and claims a first priority date of January 3, 2014, was allowed by the USPTO on October 3, 2017 and the corresponding patent is scheduled to be issued within the following weeks,” stated United American’s October 4 press release announcing its U.S. patent.

Some might dismiss the moves by United American as merely grandstanding to extract a financial settlement from Snap Inc. Given United American paid the equivalent of just $2.5 million for iFramed, it’s not out of the realm of possibility.

But what if the facts are just as iFramed suggests?

In Snapchat, you’re talking about a company that doesn’t make money, is struggling to grow its user base and relies on Geofilters to generate most of its advertising revenue. SNAP stock even went as far as acquiring its own Geofilter patent from Mobli earlier this year for $7.7 million, the highest amount ever paid for a single Israeli patent, to protect itself from future litigation.

Some in the industry have even gone as far as suggesting that had Facebook Inc (NASDAQ:FB) acquired Mobli’s patent and not Snap Inc., Snapchat stock would be dead in the water.

It still might be.

Bottom Line on Snapchat Stock

If you own SNAP stock, I’d take this nuisance suit a little more seriously because where there’s smoke, there’s usually fire.

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The longer Snapchat stock takes to settle this amicably with United American, the worse it looks for the social media app’s future and more importantly its stock.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.