Palm Drops On Apple Patent

Palm (PALM, $6.50, down $0.87) is down more than 10% this morning after the U.S. Patent Office awarded Apple (AAPL, $90.22, up $0.58) a patent for its intellectual property involving the iPhone. There is a lot of hype with the Palm Pre, a new smartphone from Palm that has iPhone-like features that has got Apple’s feather’s ruffled.

Last week during its earnings call, Apple’s acting CEO stated that the company would not stand for having its intellectual property “ripped off”. Palm replied by adding that if they are faced with legal action they “are confident that we have the tools necessary to defend ourselves.”

Palm shares have been on a roll after unveiling the Pre at the Consumer Electronics Show three weeks ago, easily doubling from $3.30 to over $8. Other smartphones have flooded the market since the introduction of the iPhone but they have avoided using the multi-touch technology covered by this patent.

Palm’s executive chairman is Jon Rubinstein, who is a former Apple executive who had his hands all over the iPod. Maybe he thought he was still working for Apple when he came up with the Pre. Either way, let the litigation begin.

There are estimates that Palm could sell a million of the Pre’s in 2009 and 4 million in 2010. Those are big numbers and Palm is wanting more than a slice of the smartphone pie that Apple holds. This could get ugly. Bears are targeting the February 7.50 puts (UPYNU, $1.30, up $0.40) in early morning trading as over 3,000 contracts have traded thus far.

Rick Rouse
Rick@OptionsMentoring.com

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