Seeking Alpha
Long/short equity
Profile| Send Message|
( followers)  

The answer to this question is yes. Vringo (I/P Engine) stands an excellent chance at achieving an enhanced royalty rate, far beyond the 3.5% recommended by the jury back on November 6, 2012. Much has been written post trial concerning Vringo's future financial success. However, today we are dealing with the here and now. The latest motion due for response, in the Vringo (NASDAQ:VRNG) post trial litigation (I/P Engine vs. Google et al), is an award of post-judgment royalties that could have a substantial lasting impact on the future of Vringo.

The royalty motion

On December 18, 2012 Vringo filed a motion for an award of post-judgment royalties. This filing was followed up with an accompanying memorandum of law (the 823 memorandum) that offered a detailed argument, supported by relevant case law, and post verdict conduct of the defendant Google (NASDAQ:GOOG). This detailed memorandum cements Vringo's position why Federal Judge Raymond Jackson should rule in favor of an enhanced royalty rate. What does Vringo want Jackson to do?

Determine the appropriate royalty base for the award

This point has been beleaguered at length and Google's recently denied JMOL has essentially ended this argument, on a pre-appeal basis. In my opinion, Vringo demonstrated more than enough evidence to receive the 20.9 % revenue base of Google's U.S. AdWords revenue. Vringo's Dr. Becker testimony went unrebutted in that regard, providing clear direction upon which Jackson may rule. Today most investors agree the common stock is already priced with Jackson upholding a 20.9 % revenue base. However, the reason short-term investors consider this equity in play, rests with the promise of a much higher unknown royalty rate.

Determine the appropriate royalty rate

What happened when Vringo lost the laches ruling? Let's refresh memory "Specifically the court grants defendants renewed JMOL of laches stating findings and rulings on the record." Just as this action, on October 31, 2012, served to drop the value of the common stock, it stands to reason and increased royalty rate beyond 3.5% should serve an opposite reaction. The question then becomes, by what basis Vringo would inspire Judge Jackson to conclude for enhancement beyond 3.5%? We can certainly rule out hysteria and chickens as an inspiration to adjust the royalty, rather we should be concentrating on the facts outlined in Vringo's response. Vringo has asked Judge Jackson to set the Royalty rate by using established case law that provides for a two-step approach. Why? Google continues to infringe post verdict, therefore counsel argues Vringo is entitled to this approach.

Where did 3.5% come from?

Several bloggers have implied that Vringo only asked for 3.5%. This is incorrect. The Jury came up with a 3.5% rate decision, more than likely based on a 2004 hypothetical 3.5% settlement between Lycos and Google, proffered by Dr. Becker in testimony. Vringo goes into great detail illustrating Vringo is not Lycos, and provides excellent case history to conclude the post-verdict behavior more than warrants the high side percentage, specifically the 5% royalty rate offered in testimony.

Google fits the model for a possible 7% ruling.

Vringo effectively argues, in my opinion, for an enhancement beyond 5% based on relevant case law and Google's documented actions following the verdict. Vringo counsel Jeffrey Sherwood outlines this quite well within sections of the 823 memorandum.

Defendants' ongoing infringement is undisputedly willful. Defendants are fully aware that their use of AdWords has been adjudged to infringe all of the asserted claims of the valid and enforceable patents-in-suit. Judgment has been entered against them, and yet they continue to infringe

This statement carries tremendous weight in favor of Vringo's royalty enhancement. However, I would ask all interested investors who have covered this trial with such great fervor, for and against, to research and answer the 9 questions Attorney Sherwood proffered in the 823 memorandum.

  1. Whether the infringer deliberately copied the ideas or design of another;
  2. Whether the infringer, when he knew of the other's patent protection, investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed;
  3. The infringer's behavior as a party to the litigation;
  4. The infringer's size and financial condition;
  5. The closeness of the case;
  6. The duration of the infringer's misconduct;
  7. Any remedial action taken by the infringer;
  8. The infringer's motivation for harm; and
  9. Whether the infringer attempted to conceal its misconduct.

Conclusion

Could we see a retrenchment of lost gains not seen since the Oct 31, 2012, decline? Many Investors are standing on the sidelines waiting for a reason to re-invest in Vringo. Further investors holding equities like Parkervision (NASDAQ:PRKR) and MGT (NYSEMKT:MGT) will be using what occurs here, in their investing strategy, as their litigation plays out. Many long and short come to agreement on one premise, volatility. We should expect to see much more volatility, both before and after Judge Jackson's decision on this pivotal event. In my opinion, no other near-term legal decision has the power to reinvigorate Vringo's future, as what is before the court now. Investors need to mark this event as a forthcoming significant catalyst that will undoubtedly affect the value of the common stock, one way or another.

Source: Can Vringo Win 7% Royalties From Google?