I sense impatience. Not the waiting-in-line-at-the-supermarket-behind-the-mother-who-is-buying-groceries-for-her-10-member-household impatience. I'm talking about a different strain of impatience. The type of impatience that one gets while waiting for the results of a CT scan. Nervous impatience.
In connection to Vringo (VRNG), there are two nervous and impatient groups of people right now. Vringo investors, and the folks over at ZTE (ZTCOY.PK). Let's first talk about the ZTE folks. After watching Vringo's courtroom thrashing of Google (GOOG), it would make sense for the ZTE team to be nervous. With the Google verdict in its pocket, Vringo is now armed and dangerous and eyeing ZTE.
Vringo filed suit on October 8, 2012, against the UK subsidiary of ZTE Corp. Check out the actual claim, and the initial warning letter. Today, Vringo filed in Germany. With close to $14 billion in annual revenue and an inventory filled with telecommunications equipment and handsets that Vringo is requesting be destroyed (in addition to damages and a crippling injunction) ZTE probably can't afford to be as tough as Google.
Vringo alleges that ZTE refused to license Vringo's patents and continued to manufacture and push devices that infringed on the patents. Of course, ZTE claims that it was indeed compliant with the patents. David Cohen, head of Intellectual Property at Vringo, noted that ZTE declared hundreds of its own patents, implying that it as certainly aware of Vringo's patents. While this doesn't prove culpability -- far from it -- it does make one wonder as to the selective patent knowledge displayed by ZTE.
Additionally, ZTE is no stranger to infringement, having already settled a lawsuit with Ericsson for 4.6 billion Swedish Kronor. That's about $676 million, but it sounds so much better in Kronor, no?
While Google seemed to ignore basic patent infringement logic and took on a bellicose nature in response to Vringo's "patent trolling" methods, ZTE seems more inclined to settle. Google fought Vringo out of pride and emotion, and had the legal and financial strength to withstand a courtroom battle with no timeline. Though ZTE has the financial strength, the risk of an injunction could cripple it. And while the Ericsson settlement serves ZTE with its most recent and painful reminder of its last patent fight, it seems that other, more salient forces might hasten a settlement. It might be in the Chinese Government's interest to keep ZTE out of the news, though with the bad press that ZTE is receiving, that might be tough. A quick and quiet Vringo settlement would help do that.
For those worried about the risks of suing a Chinese corporation, be advised that an international court is much more favorable in regard to the upholding of law than a U.S. court.
Vringo investors, unlike ZTE, have been trigger happy. A few days go by with no statement from the judge regarding the still-unverifiable jury miscalculation, the motion for interest, and the upholding/lowering/raising of future royalties, and there is a sell-off? The facts on the ground indicate positive momentum for Vringo regarding all three of these.
Aside from the courtroom victory, Vringo's current stash of patents and cash is pleasing to the eyes -- $60 million and no debt, with a slew of tasty Nokia (NOK) patents whose value is still of big debate.
Naysayers like to point out that the patents only cost $22 million for a reason, implying that billions of dollars in damages won't just fall out of the sky because of these patents. I have two answers to the $22 million argument:
1) The market value of the patents may have been $22 million at the time of Vringo's purchase, but that's assuming they would just sit on a shelf, collect dust, and depreciate in value until the patents ran out. But with a formidable legal team that understands and utilizes them (it helps to have Donald Stout, former U.S patent examiner on Vringo's side), the patents' latent value begins to shine. And more importantly, with the fresh defeat of Google in the courtroom, I argue that the value of tech patents (Vringo's in particular) skyrocketed.
2) Of the $22 million worth of patents that Nokia sold to Vringo, 31 of them were declared to be essential to wireless communication standards. Who declared them to be essential, you ask? Nokia. Some of the technologies that are represented in the purchased patent portfolio are 2G, 3G, 4G, GSM, WCDMA, and LTE. If any of these sounds remotely familiar, I'd gather that the patents have value upwards of $22 million. One might wonder why Nokia would sell such "essential" patents for a paltry sum. Don't worry, Nokia has that covered to the tune of 35% in royalties, and will profit from Vringo's legal bravado.
With Vringo's cache of arms already showing its muscle, I preach patience and confidence. Whether you are itching to hear from Judge Jackson, ZTE, future lawsuits, or Vringo's mobile development, you should wait. I recommend waiting for all four -- i.e,. long term -- but to sell VRNG at this current moment would be a fallacy of epic and impatient proportions.
Disclosure: I am long VRNG.