One thing seems certain now that Google (NASDAQ:GOOG) has made an issue out of the Norfolk Jury's damages award in their recent response to Vringo's (VRNG) motion for interest and supplemental damages: Judge Jackson is going to be faced with a decision. Does he tackle the numbers himself or does he tell the sides to take it up on appeal? Let's go with the idea that Judge Jackson will take up the question if only so the appellate court doesn't have to do what he would not. There can be little doubt that how the Judge deals with this question is now a, if not the, central issue in this case.
It was clear from the trial, in the evidence presented and through the testimony of Dr. Becker, Vringo's damages expert, that the sole apportionment figure presented (Google did not offer one) was 20.9%. In fact Dr. Becker presented figures from similar cases that could have driven the apportionment as high as 40%, a risk that would be encountered should this case go to appeal. The 20.9 percent apportionment was on 96% of Google's U.S. revenues. Again, there was no testimony on this apportionment number other than Dr. Becker's during the trial and when Judge Jackson was asked during the proceedings how he might perform the calculations, he offered Dr. Becker's exact method as a standard. Dr. Becker also recommended a 3.5% royalty which was the lower end of a royalty range that given similar cases could be as much as 5%. So there was never any confusion during the trial about how a royalty base was derived, what numbers were used (the numbers that Google turned over during discovery), what the apportionment should be, and what the running royalty number should be.
As far as the 3.5% running royalty awarded by the jury, the Judge upheld this in his "Judgment in a Civil Case" of November 20 (see that document). We are not waiting for another judgment on this number as has been suggested elsewhere. Google will pay 3.5% of some future number. This number can be debated until we get a clarification, but an appellate court would be tasked with following the weight of the evidence presented during trial. That evidence shows expert damage calculations based upon a 20.9% apportionment of 96% of Google's U.S. revenues to establish the appropriate royalty base.
So, when examining how the Judge might rule on this question we have one side (Google) that says the Judge must rule in favor of a future number that is derived solely from the manner in which the jury did their computations in arriving at their past damages award. The other side (Vringo) says that in fact any future royalty base should be derived from the evidence that was presented at trial. In Vringo's filing for interest and supplemental damages the Judge is asked for his opinion on the methodology. And because Google's response to this motion here is to say that given the jury award, in fact the non-Google defendants have been aggrieved with an apportionment of 48% of the entire award, it now appears clear that the Judge must and will respond. Both sides are now trying to clarify the award methodology.
So if you are a believer in the theory that the damage award tabulation was inconsistent with the evidence presented at trial (which I am), you believe that Vringo is simply asking the court to not only award supplemental damages for the period not included in the jury verdict (October 1-November 6, 2012) but also to clarify the calculation methodology so that it is consistent with the evidence and testimony presented at trial. Since a clarification by the Judge in favor of Dr. Becker's methodology, restated in a post trial declaration here, would not only be a major step forward for Vringo and its shareholders, but would also cast a cloud over the jury's past damage's calculation, I believe we will see a "motion to correct" those past damages. This is likely to be filed by Vringo before the court rules on supplemental damages so that both may be considered at the same time.
If you are not a believer in this theory then you applaud Google for essentially doubling down on the jury verdict, not only to dismiss supplemental damages entirely, but to seek to correct damages against the non-Google defendants via the jury's resultant calculations. This even though the formula utilized to arrive at those numbers appears to be inconsistent with that offered during the trial.
So what do I expect? I have written about, studied and attended the trial itself. But that doesn't mean I know what will happen, no one does. Here is what I expect will happen:
- Vringo will file a "motion to correct" the past damages number awarded by the Jury to have Judge Jackson consider it with their already filed motion for interest and supplemental damages.
- There is enough case law that suggests the Laches decision greatly hinders Vringo's attempt to recover pre-judgment interest. Therefore I put the likelihood of Vringo getting such interest at less than 50%.
- Because I think a "motion to correct" is forthcoming from Vringo, the court will be forced to look at the evidence from trial and not narrowly at the jury verdict as Google would prefer. Upon inspection I think Judge Jackson will correct that number, again assuming it is asked of him, and arrive at a past damage number for Google that adds $143M to their current tab of $15.8M.
- One of the reasons that the jury, in theory, and as was argued in the motion by Vringo, was not able to calculate the early fourth quarter base (where Vringo argues for the supplemental award) was that they did not have revenue figures from Google to base such an award on. It seems likely that should Judge Jackson decide to amend the past damages he will also award supplemental damages as one without the other would seem inconsistent. Should the Judge rule in this manner the supplemental award would be roughly $13M.
- Because of the apparent confusion in this case, or at least market based confusion, I suspect that Vringo will also "motion" for clarification on the methodology to be used going forward to establish the royalty base. Should Judge Jackson clarify in a manner consistent with what I have outlined above and which I believe was his intent in his judgment of November 20, Vringo will be awarded what I think they already have been awarded, $600M over the next four years on the basis of flat revenue from the infringing products which seems plenty conservative in light of Google's own projections.
The Roman poet Virgil said "fortune sides with he who dares." Vringo is now trading at the low $3 level, even after "winning" an infringement lawsuit against Google. Given the multiple points enumerated above, this represents a dramatic inflection point to buy.
Disclosure: I am long VRNG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.