The recent news of impending changes to Google Search and Adwords that was announced at the Google annual shareholder conference call last Friday, has left many Vringo (VRNG) stockholders attempting to discern what has changed. Since winning the epic verdict of the Vringo vs. Google trial both companies have been mired in a plethora of post trial motions and denied judgments, many of which have favored Vringo. The recent announcement from Google (GOOG), in response to a post trial royalty motion from Vringo, revealed a claim that a workaround to the revered Vringo search patents had become available to the search giant, and the prospect of a time table for implementation was forthcoming. With this highly charged and contested breakthrough every public announcement made by Google, that affects changes in their search engine, now carries a potential royalty loss risk for Vringo.
Aftermath of Google's workaround claim.
Following Vringo is an army of vocal shareholders, who did not take well to the claim made by Quinn Emanuel, counsel to Google. Many insist that Quinn Emanuel is party to a bluff. Are Vringo shareholders betting against Quinn Emanuel. Like all attorneys, you're only as good as your last win. By that measure, Quinn is a Superbowl contender, scoring huge victories for their clients. Rambus (RMBS) one of the pioneers of patent trolling, just found that out last February. Quinn Emanuel obtained a ruling holding unenforceable all twelve patents that plaintiff Rambus Inc. asserted against Micron Technology, Inc. (MU) and Micron Semiconductor Products, Inc., a huge win for Quinn. It doesn't stop there; Quinn won big for Google against Perfect 10 in August of 2012, at the appellate level, saving Google's billions in damages. There's no doubt in this author's mind that Quinn honestly relayed what Google said they possessed. Stepping into the fire, this author concluded that based on Quinn's revelation and the ambiguity of Vringo's response, a Google workaround may in fact be real. This position has brought forth much debate with many of the original Vringo focused Seeking Alpha authors, such as Steve Kim Law and Alan Brochstein, taking opposite positions to the author. Notably missing from this discussion is Seeking Alpha author James Altucher. Regardless of opposing views, none can dispute shareholders' trepidation and cause for concern, after hearing the results of Google's reply. How did the Vringo stock fare? Not well. Since the Quinn's reply, Vringo has fallen from $3.11 to $2.68 in a three day span, from April 16 to April 18.
Show me the workaround
Regardless of this author's position, the claim by Google is just a claim. It must be proven not to infringe. If the claim withstands Vringo scrutiny it changes the outcome of the Google yet to be ruled on, or determined, royalty payments. Naturally this is predicated on, when and if, the claimed changes are implemented. Vringo has no idea as to the date and time Google will update their code. Will Google raise a flag, blow horns; dance like wild bears around the campfire and let everyone know their system has changed to avoid infringement? No. Why should Google draw the unnecessary exposure, that they were tried infringers found to have privateered patents belonging to another? Yes expect this action to slip quietly into the night, only noticed by Vringo, the courts, and the vigilant 3 line news reporting agencies that follow Pacer disclosures.
The patents or the workaround; Google's choice
Yahoo (YHOO) CEO Carol Bartz said it best "Everything is for sale." That could be what Vringo is thinking right now. By winning a federal verdict that established their patents as jury tested and enforceable, a measure of thought must now be applied by Google in their stratagem. Google appears to be on the hook for $30 million, plus interest and yet to be ruled on royalty payments, for at least the last year. Assuming a workaround exists and the best implementation time of 60 days, Google could still be liable for under $220 million of damages and infringement. With Microsoft's (MSFT) infringement battle just beginning, does it make sense to offer a settlement to Vringo that includes purchasing the disputed patents? My position follows Google wishing to make an example of Vringo, stamping out this NPE for the entire world to see. However, this might be the wrong time for a wrong decision. There is still value here, albeit through court decisions.
While I firmly believe a workaround exists, Google should reconsider the value of the patents, especially in contrast to what they already appear to be liable for barring an Appeal. The timing of the workaround disclosure may be ripe, and just the opportunity to offer a limited settlement that makes this problem go away. Google created this cash draining Frankenstein when it failed to reach a settlement with Vringo. Casting it aside, even with a workaround, financially may not make the best business sense. With the patents, unsullied by the added expense of time wasted by appeals and presumed workarounds, others could be forced to reimburse the expense that the piper has come to collect. Google claims to have the vision to see the future, perhaps ego may be secondary in this case.