Ocado Group PLC (LON: OCDO) shares have been on a downward trend this past year and now a 7% jump this morning. The general downward trend is possibly a result of people just being less excited by the technology story of robotic warehouses. The jump today is the oddity, as it comes just after a patent fight about those robots in those warehouses.
We would expect that if the robot patents are invalid – the claim – then the company, Ocado, would be worth less. But that doesn’t seem to be what is happening, perhaps because it’s not the robot patents themselves which are worth the money.
Overall Ocado benefited mightily from lockdown. That boom in online grocery shopping meant that companies worldwide wanted to start building those picking warehouses which contained Ocado’s technology. The boom was obvious, the big question was always going to be how much that fell off as lockdown receded.
Online has been taking a percentage point or more of retail sales each year. Then came lockdown and it leapt, according to ONS at least, by a full ten percentage points of the entire retail spend. But that’s clearly a forcing, so how much of this will remain? As it happens not all of it even if the tide has receded to a point above where we started from. So, the initial excitement about Ocado being the go-to tech company also recedes. Fair enough.
Of more immediate importance is that a Norwegian robot maker, Autostore, is arguing that Ocado’s patents on the robots at the heart of those automated warehouses are “invalid”. Autostore also seems to have gained a ruling in Germany which backs this up (patent cases only need to be heard once in one inside the EU court, so this would be substantial if upheld). Ocado is insisting that it’s not true and that the IP is valid.
At which point, what do we as traders think? Or which side of this should we be?
One useful and possibly correct answer is that the patents and IP don’t actually matter. This is something of a heresy to many but is arguably true. For “a technology” is a way of doing something. Further, a technology doesn’t rely, specifically and exactly, on something that can be written down on a piece of paper. It’s the entire knowledge of how to do that thing which does matter.
In this reading the robot patents just aren’t the interesting thing that Ocado owns. So, whether they’re valid or not isn’t the underpinning of the Ocado valuation. Instead, it’s the knowledge of how to integrate an entire roboticised warehouse which is the technology and the competitive advantage. Something Ocado still owns – which is still Ocado IP – whatever the disposition of the robots case.
The Ocado jump this morning could be explained by the more general market realisation of this point. Even if Ocado doesn’t own the robot patents – something still being shouted about – Ocado does still own the valuable thing, how to build automated warehouses that use robots. That is, after all, what people hire it for.
What happens next to the Ocado share price could well depend on how widespread this idea becomes.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.