The Ocado (LSE: OCDO) share price is currently more than double the price at which it started the year. In a rare exception, the online supermarket has generally benefited from Covid and lockdown.
Although the company is known as a supermarket, its real niche has been the development of automated warehousing technology. Effectively, having robots picking and packing customer orders, with computer systems automatically setting delivery routes.
This technology now seems under threat, however. Norwegian rival AutoStore has accused Ocado of copying some of its technology.
We all know the company has an online supermarket, but Ocado in fact is also a tech specialist, selling its automated warehouse technology. It is this Ocado Smart Platform (OSP) that AutoStore is claiming infringes several of its patents.
Yesterday, the Norwegian firm filed complaints in both UK and US courts against Ocado. The claim is quite specific, relating to lifting mechanisms and in-wheel motors. It also references robot design within a ‘hive’ warehouse format. The claim does not, however, state any level of potential damages to be paid.
The Ocado share price dropped about 5% when the news was released, and is currently down another 4% today. Unfortunately I think there is good reason for this.
Ocado and AutoStore have worked together since 2012. In 2017, a Norwegian court found that AutoStore was entitled to a number of patents surrounding the warehousing technology.
Ocado has been placing a lot of emphasis on its warehouse technology. It has been investing heavily in OSP. If this area staggers to a halt because of patent infringement, the Ocado share price will likely follow suit.
Covid to the rescue?
One saving grace the firm may see over the next few months is the ongoing Covid problem. The increase in online shopping due to the pandemic and lockdown has been a key driver behind the Ocado share price this year.
As Christmas approaches, Ocado already looks set to benefit from increased online shopping. Any further lockdowns and social distancing measures are almost certainly going to increase this further.
Interestingly, it may even benefit from other supermarket giants seeing increased online shopping. According to the company, it has always found it easier to poach customers from other online retailers.
What next for the Ocado share price?
There’s potentially a mixed future, to say the least, for the Ocado share price. I think Covid and lockdowns are going to help over the next six to 12 months. But the warehouse technology is a very significant branch of Ocado. Investors do not want that to come under threat.
This latest dip in the stock could have been an opportunity to pick up a bargain. In all honesty though, I think there are a lot of unknowns regarding the patent infringement that may hurt the Ocado share price even more.
Personally I think there is just too much risk of the share price going lower. If and when it does however, I will certainly be thinking of investing.
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Karl has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.