Google's (NASDAQ:GOOG) end game may be approaching faster than previously thought in the Vringo vs. Google post-trial drama. Today Vringo (VRNG) investors received a positive decision from Federal Judge Raymond Jackson in his order denying Google basis to permit further discovery on Vringo's motion for an award of post-judgment royalties. This is a serious setback for Google's post-trial litigation strategy. Vringo investors are quickly seizing the opportunity, after enduring the bulk of Google's prolonged litigation strategy. The time-value cost of a delayed decision plays heavy on investor's decision making processes. This conservative analysis is shared by many, but the latest fissure in Google's strategy, further documented in this discussion, may have created the right amount of judicial force in favor of creating an environment for a settlement.
Dr. Becker Round 1
Post mortem, many will suggest that this trial's pivotal testimony was by Vringo key expert witness, Dr. Stephen Becker. Google's JMOL supporting memorandum played heavily on overturning Dr. Becker's testimony. I previously opined that Google's issue with Dr. Becker centered on his use of graphs and charts, which Google deemed improper for use at trial. In his final ruling, Judge Jackson took a different view and allowed these props. The recently denied motion opined below continues to build on what I believe will be Quinn Emanuel's basis for appeal. That basis will be centered on over-ruling Vringo's most damaging asset, Dr. Stephen Becker. Although Quinn Emanuel has utilized the tactic of over turning expert testimony before and enjoyed limited success in previous cases, the odds are in favor of Vringo. Google could have played the "workaround claim" in tandem with the JMOL memorandum and possibly won a discounted settlement. However, in hindsight, the workaround was presented far too late, post trial, to effectuate a beneficial settlement outcome prior to a royalty decision.
Dr. Becker Round 2
Google failed miserably at this latest legal attempt to somehow bring Dr. Becker in for a deposition to prove Google's argument of a postulated new settlement system, a desperate move at best. The objective was obvious. Quinn Emanuel wanted another bite at the apple but Raymond Jackson declined the offer. My hypothesis extends that Quinn surmised that Jackson made an error in allowing some of the testimony offered by Dr. Becker, and by granting this motion for deposition Jackson would in some small measure balance the scales. Jackson sweetened the pot further by allowing Google an additional 15 days to respond. Quinn couldn't have been more wrong.
Before the Court is Defendants' Renewed Motion to Compel Deposition of Dr. Becker
and for Enlargement of Time to Oppose Plaintiffs Motion for Post-judgment Royalties. On April 17, 2013, the Court entered an order directing Plaintiff to respond to the Defendants' motion on an expedited basis. The Court also directed the Defendants to forgo filing a reply brief in support of their motion. Having considered the pleadings, the Court finds no basis to permit further discovery on Plaintiffs Motion for an Award of Post-Judgment Royalties(ECFNo. 822). Accordingly, Defendants' Renewed Motion to Compel Deposition of Dr. Becker and for Enlargement of Time to Oppose Plaintiffs Motion for Post-judgment Royalties is DENIED. Defendants are ORDERED to respond to Plaintiffs Motion for an Award of Post-Judgment Royalties WITHIN TEN (10) DAYS of the entry of this Order. Plaintiff is permitted to file a reply to Defendants' response WITHIN FIVE (5) DAYS of the entry of Defendants' response. In the event that the Court finds that oral argument would assist its decisional process, it will
Notify the parties.
IT IS SO ORDERED.
Raymond A. Jackson"
As a consequence, Google will more than likely include this latest decision in its basis for appeal, should this become more preferable to a settlement, after the final royalty determination is ordered. Still Google must reflect and compensate for the loss of this decision. A win that would have extended the royalty motion decision, easily 3-6 months. This valuable 3-6 month loss of time removes another option that Google could have used in a possible settlement, in addition to doing unrecoverable harm to Becker's basis of determining the royalty. That option has dissolved amidst Jackson's indirect efforts to kick this case to the appellate court post haste.
No good options for Google
There is little Google can say in its response, due in 10 days, that hasn't already been said before. Vringo claims they are infringers, the jury agreed, and now Raymond Jackson, pending Google's reply and Vringo's follow up, has slammed the final door shut on Google. We have reached the point at the federal district level that justice must be served. Both the plaintiff and the defendant have covered their positions well, with little remaining that can change the presumed direction of Vringo's royalty motion. I believe Jackson has already decided what the royalty rate will be, or has a good indication. I previously opined that a decision point for settlement, would be before Judge Jackson decides the royalty rate. I continue to believe this is the case. We now enter litigation's version of "Let's make a deal", however Jackson is making the choices. Behind each infringement door, expressed as percentages lays substantial damages for Google. Does Google really want to see what's behind each of Vringo's requested doors, as filed in the royalty motion?
Let's restate Vringo's options in a way that would respect Monty Hall, allowing for conservative year over year growth and excluding the jury damages, and interest;
- Door number 1: 3.5% Royalty Rate $550 million damages
- Door number 2: 5.0% Royalty Rate $825 million damages
- Door number 3: 7 % Royalty Rate $1.1 billion damages
A well-known artist of the cinema successfully summed up negative choices in an eloquent way "….you've got to ask yourself one question: Do I feel lucky?" Google would be well served to examine that statement, at this juncture in the litigation. The benefits could be hundred's of millions of dollars in unnecessary damages.
Conclusion: Google's Strategy has Failed
Google's strategy was complex and risky but has worked before for other defendants. Slow this down, stretch out the litigation, play the system until the right opportunity or weakness develops and slam the mouse trap shut. The history of this case provided many opportunities for Google to effectuate that plan. However, I believe this activist federal judge Raymond Jackson was a factor not correctly played, and totally misread by Quinn. The late pre-verdict win on the laches ruling sent the wrong message to Quinn and possibly created a handicap to the defense. That thinking follows the belief that Quinn felt Jackson was more of their advocate at key decision points, as opposed to poor preparation by Dickstein Shapiro, as in the laches defense. Jackson's further shooting down Google's JMOL and the unexpected denial order of today leaves Google with very few delay options, and a huge liability in the making. Cautious investors should take note; there may be no better time than now to own Vringo. Concurrently many feel its time for Google to push back from the table and call it a night, rather than a continued gamble on a losing strategy that's only solution is an incurable billion dollar problem.
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.