For those of you who have been following the case and most of the PACER docs in the patent infringement trial of Vringo (VRNG) vs. Google (NASDAQ:GOOG), AOL (NYSE:AOL), Target (NYSE:TGT), Gannett (NYSE:GCI), and IAC/InterActive (IACI), we are waiting for Vringo to make their final post trial motions which I feel will come like a torpedo within hours.
As I wrote in a prior article, on Nov. 6, 2012, the "420" and "664" patents owned by Vringo were finally "validated" in a federal court in Virginia, and the jury unanimously returned a verdict award for Vringo amounting to $32 million with respect to past damages involving the following defendants.
Let's Be Perfectly Clear:
1) There has been a lot of speculation slanted toward the positive as well as the negative sides involving this case.
2) The "final judgment" in this case has not been made by presiding Judge Jackson, but I feel as if we should have some additional material news tonight before midnight.
As Per Vringo's Latest Rebuttal:
Dated December 7, 2012 the parties (Vringo and Google) do not dispute that the appropriate form of damages is a running royalty. The parties also do not dispute that the jury awarded a royalty rate of 3.5%. The only disagreement appears to be over the appropriate apportionment factor to use to arrive at the royalty base to which the 3.5% royalty rate would apply.
Item #13. In the November 9, 2012 Declaration, it is explained that the appropriate
apportionment percentage is 20.9%. This is the flat going-forward apportionment percentage that I presented at trial (Trial Tr. at 820-21). The 20.9% apportionment factor is applied to Defendants' total U.S. revenues from the accused systems, AdWords, AdSense For Search and AdSense For Mobile Search (derived from the requested accounting) to determine the apportioned royalty base.
Item #14. According to Dr. Ugone, an apportionment rate of 2.8%, not 20.9%, should be used for the calculation of Google's supplemental damages. He arrives at this figure by visually estimating the height of bars on a demonstrative exhibit presented to the jury (PDX-441) and comparing those estimated amounts to the $15.8 million that the jury awarded from Google. (See Ugone Decl. ¶ 8 and Exh. 2.) Several things are obvious from Dr. Ugone's calculation and his resulting opinion that the appropriate apportionment percentage should be 2.8%. Dr. Ugone's methodology ignores the fact that the jury awarded damages to I/P Engine from AOL, IAC, Gannett and Target as well as from Google. Dr. Ugone estimates the ratio of the jury award against Google as a proportion of the estimated $118 million in claimed damages for the period September 15, 2011 through September 30, 2011. (See Ugone Decl. Exhibit 2 court doc) Even assuming the premise of his calculation was reasonable (which it is not), the calculation is flawed on its face. The damages figures presented to the jury in graphical form at PDX-083 and again at PDX-441 were the total damages for all defendants, not just the damages associated with Google's infringement. This can be seen by comparing the bar chart at PDX-083, which is clearly labeled as totaling $493 million in royalties, to PDX-44, the bar chart used by Dr. Ugone. Both present identical royalty amounts, with the only difference being that in PDX-441the bars for Q4 2011 through Q3 2012 have been shaded, reflecting the post-laches time period.
That the total amount, $493 million in royalties, represents all defendants, not just Google, is evident from the trial transcript and from PDX-055, a summary of the royalty damages that was presented to the jury during the trial. (Trial Tr. at 767:20-768-8).
Item #15. By using only the $15.8 million awarded against Google and ignoring the $14,696,155 awarded against the other Defendants, Dr. Ugone is suggesting a meaningless and unreliable apportionment percentage. This can be demonstrated by applying his 2.8% apportionment factor to the period covered by the actual award. Total accused revenues (including the Google co-defendants) for the period from September 15, 2011 through September 30, 2012 were, based on accounting documents produced by Google (and admitted as trial exhibits?) were $16,181,666,400. Dr. Ugone's 2.8% apportionment factor, if applied to
these undisputed amounts of revenue yield total royalties, for all defendants, of $15,858,033, not the total jury award of $30,496,155.
Item #16. The only relevant apportionment percentage proffered at trial, however, and the only apportionment percentage ever suggested to the jury was 20.9%. Neither PDX-441 nor any other exhibit or demonstrative introduced at trial supports a 2.8% apportionment factor.
To arrive at Dr. Ugone's conclusion, one must ignore all evidence presented at trial, back into an implied speculative apportionment factor, and ignore the rest of the jury award.
Item #17. The likely reason for Defendants' convoluted apportionment calculation and exclusion of the damages awarded from the other defendants is the decimal point transposition error made by the jury in the verdict form. Based on my review of the verdict form and evidence submitted in this case, it is clear that the jury, in an apparent effort to adjust the total damages down to just the post-laches damages period, applied a percentage to the originally pre-laches damages amount of $493 million.2 A simple mathematical calculation bears this out. Using the $493 million, including the Defendant-specific breakdown as the base, the jury awarded 35% of the damages I/P engine sought for the original damages period for each of AOL, IAC, Gannett, and Target. (See attached Exhibit 3) For each of these defendants, there can be no question that the jury applied its 3.5% royalty rate to the only apportionment factor that was presented at trial: 20.9%. The equivalent damages figure against Google, consistent with this approach, should have been $158,000,000. However, for Google, the jury awarded $15,800,000. This amount is
simply 3.5% of the damages I/P sought for the original damages period-one tenth the amount awarded for the other defendants. (See attached Exhibit 3) The evidence of the underlying revenues for each of these defendants was the same. The apportionment percentage that was presented to the jury was always the same for all defendants, namely 20.9%. The royalty rate opinion offered, 3.5%, was always the same for all Defendants. Thus, the portion of the amount I/P Engine sought for the original damages period should have been the same for each of the defendants.
Because of the exactness of the numbers being 10 times off, the most plausible explanation is a simple decimal point transposition.
Item #18. Again, the only apportionment percentage (relevant to this issue) with which the jury was ever presented was 20.9%. In contrast, there was no evidence at all of a 2.8% factor 2 (See PDX-055 for an example of the damages breakdown by Defendant that was presented to the jury.) and, in particular, no evidence upon which one could conclude that the intended royalty rate to be applied to Google was an order of magnitude lower than the other defendants.
To arrive at Dr. Ugone's conclusion, one must jump through multiple hoops-none of which were ever proffered at trial.
Some have questioned a reference to the need of the judge to correct clear error and prevent manifest injustice. It is important to understand how and where they apply. It relates to the Court's duty to exercise sound judgment in the exercise of his discretion re altering the judgment. It also applies to the exercise of his duties under Rule 60. If you will go to the Plaintiff's Reply statement at page 15 and to the Footnote 5 statement that we have been focused on, you will see that the footnote is a footnote to a particular phrase used by the Plaintiff in his Reply.
The phrase is: "clear error".
The point that was being made was that if the Judge chose not to inquire into the issue of the decimal "transposition", one could argue that a manifest injustice had occurred.
But, once he decides to look into the matter, Vringo argues that it is 'clear error'. In a nutshell, Vringo attempted to incorporate both phrases to demonstrate how they might apply.
We should all agree that this is an experienced federal judge. He is not a fool by any means. Oh no, he knows the problem and I strongly feel that he will fix it if he can. The judge may have already made up his mind on the outcome? He may already know exactly what he is going to rule. We don't, and will have to wait it out as painful as it may seem today. Silence is deafening. Fear is amongst us with no updates. Conviction for the longs is all we have. Conviction that Don Stout and Ken Lang have done everything that they said that they would do from the start.
Who knows, the full outcome may already be decided in the judge's eyes given the laches ruling that threw everyone for a loop. Unbeknownst to us, there may have been many sessions in the judge's chambers to find a resolution here? It's all pure speculation until the judge speaks. The Judge may have already indicated to the parties counsel that he is prepared to deal with this issue if no settlement ever arises. He probably doesn't want detailed motions and he doesn't want argument, but this does seem to be forthcoming. He can move on his own motion under Rule 60. Be assured that whatever happens, Vringo's attorney Sherwood will do what is appropriate to meet their strategy.
Many have conceded that the Judge saw the problem right away. Each federal district has their own way of dealing with these kind of things. He knows how to handle these situations when and if they should arise as rare as they may be. All of this guessing right now is highly speculative you know. It does raise another question in this case. How can you not consider the integrity of the juror's evidence after several weeks of news and social pressure in this case? Was it all for nothing? I don't believe so.
Key Updates Should Be Forthcoming By Wednesday:
According to docs filed with a serious deadline looming, tonight is the last chance for Vringo to file their post-trial motions and reveal their strategy against the defendants. I suspect that this will be good news for those who have been patiently waiting for more details in this trial. We all need to shed some light on the future strategy by Vringo.
Will Ken Lang announce a new mobile Platform Soon? Remember he is the mathematical genius that invented and patented search methodology that lawyers say AOL, Google and others are infringing upon. Doesn't Ken Lang now oversee a development team based in Israel? I think so. It's a talented group, he said in a recent filing. He visited them earlier this year and is eager to collaborate on a major new project. He further commented that it's a platform he has wanted to do for five years.
The Bottom Line:
When the new post trial docs are released and the judge eventually makes his final ruling on all of the damages and running royalties in favor of Vringo, it will give a big boost to those who have been holding stock in Vringo. An opportunity for a year-end run in Vringo stock is still valid. As for Google and the others named as defendants, sure it will sting a little. Egos may get bruised a bit, but a strong favorable "final" ruling by judge Jackson favoring Vringo should not have a damaging effect on rising earnings like we have seen with Google year over year. Stay tuned.
Disclosure: I am long VRNG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.