Ocado (LON: OCDO) (OTCPK: OCDDY) shares are up 11% in London. OCDO shares rose on the announcement that the Autostore litigation is now at an end. Clearly the major assumption here is that Ocado has won the litigiation. Certainly, some parts of it make that seem likely. But it's also possible to read this another way. That the case was not, perhaps, as strong as at first thought. Further, that this actually increases, not reduces, the competitive threat from Autostore.
True, that's a pretty contrarian view there, but we think it supportable. The announcement from Ocado: “AutoStore will pay £200m to Ocado. This will be paid in 24 monthly instalments, starting in July 2023.” OK, so clearly Autostore has been a bad boy - you don't pay £200 million for having been pure as the driven snow. But this part: “There is a cross-licence of certain patents between the parties whereby: Ocado and AutoStore have complete freedom to access and use technology covered by each other's pre-2020 patents. Ocado and AutoStore are allowed to continue to use and market their own existing products without challenge of infringement of the other's post-2020 patents. AutoStore is not permitted to make or use a single-space cavity robot in any jurisdiction where Ocado has patent protection.” That's a great deal more arguable.
In fact, we'd say that does increase the likely competition from Autostore.
Ocado Group share price from London Stock ExchangeThink through this for a moment. Ocado is really trying to market itself as a technology supplier. They know how to make online grocery work. Because they know how to run the warehouse, the picking and packaging. That's the entire technological offering.
Now some of that is learning by doing, implicit knowledge in the workforce. But another part of it is the patents. Which they've just licensed to Autostore.
Further, the OCDO share price is really determined by the idea that the company is a tech one. It's got something - those patents, that knowledge - that can be sold, rented out, to other people. It is not dependent for growth on its ability to actually deliver food. Rather, by its ability to sign up people who want to use that technology. But that's exactly what they've just licensed to someone else. If Microsoft had agreed that someone else could market Windows, without licence payments, we'd have thought it very odd indeed.
To the extent that the technology is the beating heart of the company then Ocado's just licensed it on a no royalty basis. But if the technology isn't the beating heart then we shouldn't be rating OCDO as a tech stock. We're really not sure that's a positive set of conclusions.
Note that Autostore is also up 1.4% this morning. That's not a conclusion that the deal is bad for them now, is it?
