Vringo's Billion-Dollar Win At Hand

Apr. 7.13 | About: FORM Holdings (FH)

Vringo (VRNG) appears to be holding 4 aces into a billion dollar purse forcing Google to double down or call. At stake is a motion to rule on Vringo's (I/P Engine) post trial infringement royalty. Vringo wants Google (NASDAQ:GOOG) punished for violating its patents in no small measure. On the contrary, Vringo is looking to mount a trophy head and Google is on the run. The hunt escalated last November, when a jury of 12 reached a unanimous decision. The verdict was read and Google left the courtroom proclaiming innocence, with full disregard to their new status as a bona-fide infringer of Vringo's coveted search patents. Six months have passed and the "Don't be evil" folks continue to infringe. Vringo demands justice for Google's arrogant disrespect of the verdict and continued use of plundered Vringo patents, without a penny in compensation. Imagine the Las Vegas answer to a player that loses but wishes to continue playing with the winner's money. Friends have chided me, claiming there is more justice in Las Vegas than in a court room, but the stage is set and Judge Jackson could mete out a potential billion dollar royalty order against Google. What is Google to do? This is end game strategy and the players are legal heavyweights. Google is on the ropes and this is the beginning of the end, of this very played out, billion dollar litigation match. Here's my short list of Google responses and outcomes to the pivotal reply due in 12 days.

"Our Technology has changed. The Vringo patents are not applicable"

Many have declared that statement just impossible to deliver, but can it be done? Ask Facebook (NASDAQ:FB). In less than 6 months they have gone from phone concept to implementation. HTC announced the "Home" phones will launch April 12. eMarketer expects they will triple their ad revenue, coming in at just short of $1 billion. Let's not discount the talent of Google, with some of the best Software Engineers in the world. If it can be done, Google can do it. However, risking a new platform on tried and true technology for less than a one time 2% of revenues hit? Sorry, only Steve Ballmer could make that call and Microsoft (NASDAQ:MSFT) has the franchise on losing ideas. Think Windows 8, and listen to Gartner talk about a world without Microsoft. Which segues to my comments here last week that Microsoft may not have 3 years. Is someone at Gartner reading Seeking Alpha? Of course this is common knowledge so let's call this good timing.

"We don't owe because Dr. Becker's testimony is still wrong."

This is my personal favorite and one that Google Attorneys Quinn Emmanuel used before in the recently denied JMOL. Without hashing up everything in Google's JMOL supporting memorandum, Google's last play for overturning the verdict rests with Dr. Becker's testimony. Why is Becker wrong? Because he used graphs and charts that Google deemed improper for use at trial. Judge Jackson allowed these props and Google would have the appellate court believe the jury was irrevocably changed after seeing it. The jury saw it and ruled based on it. Google found issue after issue and quoted relevant federal case decisions that supported its conclusions. Judge Jackson was not moved. Google's response to the JMOL ruling was totally predictable, let's file an appeal. That might be a great idea and the last play left for Emmanuel Quinn. Recent battles by Quinn has shown great success in over ruling witness testimony, after receiving a losing lower court decision. Need to be convinced? Just examine the Soverain vs. NewEgg decision at appellate court level. Quinn lost all the battles for NewEgg, but won the war in the appellate court. Coincidentally, this online shopping cart patent infringement case, has some remarkable similarities to the Vringo case. In that Newegg essentially gave a weak defense and rolled over on the royalty motion and was ordered to pay 2 ½ times the recommended juries' royalty rate. Later only to have the appellate court agree with Quinn on the JMOL and throw out the jury verdict. In my opinion, Quinn wants out of Judge Jackson's court as soon as possible. As a confirmed infringer there will be little to gain, and everything to lose. That suggests to me the defense would be the same as what we saw on the JMOL, guaranteeing a turn of the wheel at the appellate court. What's the pre-appellate result? At 7% factoring growth, penalties and well earned attorneys fees, at least $1 billion.

"Buyout as a settled response."

Why not? Does Google really want to gamble on an appeal, and possibly lose upwards of $1 billion? Time is closing in on Google, and the Vringo machine can't be stopped by stonewalling as the recently filed appeal has them making another run at laches and a corrected jury verdict. Though the filing was a reflex action, Vringo is sure to play it up as a clear message to Google. Vringo has no intention of settling for anything less than the outcome from post trial motions. They can't, Microsoft is watching. Further, Google writing a settlement check after Jackson rules makes little sense. They will have elected the Becker defense and headed to appeals by then. Logic suggests Google will be committed to the appeals court upon Jackson's read of the royalty decision. That decision surely will only serve to embolden Vringo and enhance the stock value. The actuaries must have advised Google to stop feeding this tiger. Purchase Vringo now, saving capital and avoiding the risk of an enhanced royalty and automatic gambit to the Appeals court. What CEO would take that risk with Microsoft watching Vringo become stronger by the day? History may repeat itself. Microsoft acting as Yahoo (NASDAQ:YHOO) and Vringo playing Overture, and Google left once again paying for buying the wrong search patents. Vringo's strategy becomes transparent. The option that Vringo gave to Microsoft less than a week ago, come back in 60 days, has one possible conclusion. This being just enough time for Vringo to decide who will be cashing Microsoft's check, Vringo or Google. Naturally Microsoft is aware of this and may deem to enter this game, if for nothing else to mitigate their loss or just to be relevant.

Conclusion: Google has no easy alternatives, Vringo ripe for the taking

In my opinion, the contents of Google's reply closes all of its options and sets in motion the final chain of events that concludes this litigation. My message to Google? Losing billions does carry consequences, just ask Microsoft. Google has had their Android missteps as well, and losing a billion to Vringo won't make the sky fall at Google. However, it will add fuel to every other patent troll that's ready to plant their flag. This would amplify the legal woes of Google significantly, and surely generate more talk of patent reform to the FTC and Congress. My opinion follows the actuaries, limit the loss, it's time for Google to buy Vringo.

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.