According to an updated SEC filing, Reddit is examining a letter from Nokia Technologies asserting infringement on some of the telecom and cloud network's patents. The letter precedes Nokia Technologies' high-profile initial public offering (IPO) this week.
Nokia Claiming Patent and Royalties
The revelation comes after the Federal Trade Commission (FTC) investigated Reddit's sale, licensing, and sharing of user-generated content practices with third parties for AI model training.
According to the company's statement, Nokia aims to be compensated for the use of its inventions and use the royalties for developing future communication and multimedia technologies.
Patent Disputes Preceding IPO
Reddit, which has faced patent disputes in the past, aims for a valuation of up to six point five billion dollars in its IPO in highly anticipated share sales in recent years. It says it acknowledges the potential for more intellectual property claims amid its rising competition and visibility.
Social media companies often encounter patent disputes, typically resolving them without litigation, notes Michael Parks, a law firm Thompson Coburn LLP partner. While Reddit's issue with Nokia has not escalated to a lawsuit, the Finnish company has faced significant patent challenges.
Reuters reported on Sunday that Reddit's IPO has been oversubscribed four to five times. This indicates a strong likelihood of achieving its target valuation, which will be announced on March 21 at the New York Stock Exchange.
Parks said that if a company is gearing up for an IPO and faces a significant patent infringement lawsuit, it will raise investors' eyebrows.
While oversubscription does not ensure a strong market debut, it indicates that Reddit is likely to meet its targeted price range of $31 to $34 per share during its IPO pricing in New York on Wednesday. The sources, who requested anonymity due to the confidential information, mentioned that the IPO marketing efforts were ongoing, while a Reddit spokesperson chose not to comment.
Reddit has adjusted its valuation expectations downward from ten billion dollars during a private fundraising round in 2021 and aims to raise seven hundred forty-eight million dollars in IPO.
The Reddit Community
Despite a loyal user base, Reddit has been experiencing financial losses every year since its inception in 2005 and has fallen behind in commercial success compared to peers like Meta Platforms' Facebook and Twitter, now known as X, due to its niche topics and relatively lenient content moderation approach.
Reddit relies on volunteer moderators to oversee content posted on its forums. These moderators also have the autonomy to step down from their roles at any time, like in 2023, when several resigned in protest as Reddit charged third-party app developers for data access.
Reddit's 100,000 online forums, known as subreddits, cover a wide range of topics, from the lighthearted to the profound, as co-founder and CEO Steve Huffman describes.
Reddit's influential communities gained prominence during the meme-stock frenzy of 2021. Retail investors on Reddit's wallstreetbets forum banded together to purchase shares of heavily shorted companies like GameStop.
To leverage its appeal among retail investors, Reddit has set aside 8% of the total shares available for eligible users and moderators on its platform, specific board members, and the friends and family of its employees and directors.
According to a regulatory filing, Reddit had an average of 73.1 million daily active users, known as uniques, in the three months ending December 31, 2023.
