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Activision Files Patent Lawsuit

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Activision Publishing, a division of Activision Blizzard (ATVI - Free Report) recently announced that it has filed a lawsuit claiming patent infringement against Worlds Inc. and Worlds Online Inc., well-known developers of 3D virtual spaces. Activision Publishing filed the lawsuit in the U.S. District Court for the Central District of California.

Activision alleged that Worlds Inc continues to violate two patents related to interactions in the virtual world. Activision’s lawsuit counteracts Worlds Inc.’s earlier lawsuit filed on Mar 30 this year. Worlds Inc. alleged that Activision violated its patent related to “System and Method for Enabling Users to Interact in a Virtual Space”.

Activision’s claims that Worlds Player violated two patents namely "Navigation with optimum viewpoints in three-dimensional workspace interactive displays having three-dimensional objects with collision barriers" and "Climability: property for objects in 3-D virtual environments".

Although it is very difficult to predict a winner in these types of lawsuits as they tend to linger over a period of time, we believe that eventually both the companies will settle in the near future.

Activision is going through tough times following court’s decision to stall its proposed purchase of $8.17 billion worth of shares from Vivendi SA, its majority shareholder. On Sep 18, a Delaware Court judge ruled that Activision needs to seek shareholder approval to move ahead with the proposed buyback.

On Oct 10, Activision is set to appear before the Delaware Supreme Court to appeal against the lower-court injunction that stalled the deal. Although Activision has confirmed its commitment towards the deal and is also likely to take shareholder approval, we believe that time will be a major constraint.

The agreement between Vivendi and Activision will automatically terminate after Oct. 15. Hence, a successful appeal in the Supreme Court will revive the chances of the completion of the deal. However, an unsuccessful attempt will hurt the stock price in the near term.

Nevertheless, Activision’s innovative product pipeline is a major growth catalyst going forward. However, stiff competition from the likes of Electronic Arts (EA - Free Report) , Take-Two Interactive Software Inc. (TTWO - Free Report) and Zynga Inc. remains a major headwind.

Currently, Activision has a Zacks Rank #3 (Hold).

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