Reference no: EM133200728
Assignment:
Mango Electricals (ME) Ltd is the consumer electronics company behind the phenomenally successful smart-phone mPhone. Last year, it made £500M in profit. ME is forecasted to exceed its last-year profit by 10% this year. Styopa, the recently appointed CEO of ME Ltd is nevertheless concerned with one important decision that he has to make. His main competitor, Gungsam has filed a lawsuit against ME accusing it of patent infringement. Gungsam is asking for a compensation of £250M.
The case is due to be tried 1 year from now. Gungsam had also filed a similar lawsuit against a smaller rival, Redberry Ltd, which is going to be tried in 6 months. ME's legal team thinks that Gungsam has a 50% chance of being successful against Redberry and if they are successful there is a 80% chance that they will also be successful against ME.
If Gungsam was successful then ME had the option of contesting the requested compensation of £250M. The legal team thought that there was a 60% chance the amount would remain unchanged, there was a 20% chance they could get it reduced to £100M but there was an equal chance (20%) it could increase to £300M. If, however, the case against Redberry was not successful, then ME would be off the hook - Gungsam's case against ME would be automatically dropped without ever reaching the court.
Gungsam's legal team had offered ME the option to settle out of court now for £100M. If ME did not settle, however, and the patent infringement case reached the court, the legal costs for ME would reach £15M. Furthermore, the cost of contesting the compensation, if it came to that, is estimated to be another £15M. In case the case never reached the court (i.e., the case against Redberry was not successful), the legal costs are negligible
a) Structure the problem. What could be Styopa's objectives? Lay down the decisions he has to take and the uncertainties he faces in chronological order.
b) Assuming all quoted numbers are correct, what should Styopa do? Provide a complete policy advice and discuss return as well as risk associated with the different options.