Wednesday, 18 March 2009

Star's Lawsuit Decision Out Of Alice in Wonderland

AeroMechanical Services Ltd. (TSX:V-AMA)
Basic Shares: 82.5 million
Fully Diluted: 88 million

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Star Navigation's March 17th announcement that it was abandoning its patent infringement lawsuit against AeroMechanical left AMA investors both relieved and riled.
Relief came with the removal of what AMA consistently labelled as a "frivolous" lawsuit that nevertheless hung like a dark cloud over AMA's share price.
But anger erupted among many AMA investors when they read that the reason Star tucked its tail between its legs was because AeroMechanical's "meagre sales" meant it would cost more to carry on with the litigation than Star could collect in damages.

With respect, let's look at the facts:

  • Star knew when it first launched its lawsuit in 2007 what AMA's financial statements were. They were filed on SEDAR;
  • Star knew what AMA's updated financial statements were when it filed several major revisions to its lawsuit over the years. Those financial statements were also on SEDAR;
  • Star's chances of succeeding with its patent infringement lawsuit were seriously damaged three months ago when Star lost its challenge to the validity of AMA's patents at the United States Patent Office;
  • Star's sales are a pittance compared to AMA.
S0 given all of the above, many AMA shareholders were stunned that Star felt the need to poke AMA investors in the collective eye with what appears to be a nonsensical reason for its exit from the courtroom.
But shareholders shouldn't despair.
To understand the nonsensical, all they have to do is recall the famous line from Alice in Wonderland when the Mad Hatter issued a riddle to which he knew there was no answer:
"Why is a raven like a writing desk?"