The recent action by the USPTO has left much confusion and debate centered on the Vringo (NASDAQ:VRNG) vs. Google (NASDAQ:GOOG) patent lawsuit. While the non-final order presents an interesting analysis of actions by the United States Patent and Trade Office, versus judicial decisions and verdicts concerning patent infringement, it has little if any practical impact to this lawsuit as it applies to post trial enforcement and collection stages. Investing in patent litigation stocks requires investors to have a basic understanding of the policies and procedures of the USPTO, the U.S. Judicial system, and the significance of prior art. It's also helpful to become acquainted with a common safeguard frequently used by successful plaintiffs against future prior art claims in litigation.
USPTO (The United States Patent and Trademark Office)
The USPTO is an agency that is regulated by the Department of Commerce. This falls under the final authority of the Executive Branch, or President Barrack Obama. For the purpose of this discussion, the other impacting branch of government is the Judicial, with the United States Supreme Court being its final authority. It's common knowledge Vringo prevailed in its verdict in the Vringo vs. Google lawsuit last November. That verdict is presently awaiting a post trial motion ruling for royalties by Vringo (VRNG) acting as plaintiff. The defendant Google et al., realizing it could lose potentially as much as $1 billion, has petitioned the USPTO to rule the Vringo patents in question '420 and the '664 invalid. On May 3, 2013 the USPTO finalized their reexamination report on the '420 patent, holding for Google in their decision. The '664 patent examination report has not been answered as of this writing and is still outstanding. Regardless of that outcome, Vringo will appeal both of the decisions.
Federal Court and the U.S. Court of Appeals
Vringo, in a matter of days, is expected to win a royalty award that could be as high as $1.3 billion. How does a USPTO decision possibly granting Google's request to rule the '664 invalid, along with the previously ruled '420 patent affect Vringo? Two very significant factors nullify both of Google's desperate attempts to avoid payment. Pursuant to 35 U.S.C. §§ 301-307, Vringo's patents will stay intact as long as the USPTO has not issued a certificate of cancellation. It's the policy of the USPTO to issue a certificate of cancellation only after the patentee has exhausted all appeal remedies available to it. In the case of Vringo, the timeline suggests at least 3 to 4 years will pass before this becomes a possibility. Google's potential appeal would have been heard and ruled upon by this time. The second factor is the Seventh Amendment to the U.S. Constitution, specifically to reexamination; this clause forbids any court from reexamining or overturning any factual determinations made by a jury, unless those factual determinations are clearly in error. At the time Vringo won its jury verdict, its patents were valid and in full force. The action of the USPTO cannot be used to override the jury verdict without violating this amendment. In my opinion, this possibility is outside the time frame, but if this was not true, Vringo would have the superior chance of prevailing in the appeals court or the U.S. Supreme Court in a 7th Amendment complaint against any opposing appellate decision.
Eliminating Prior Art with "Continuing Patents"
Vringo has learned a significant lesson with Google's insistence of prior art admissions in its examination requests to the USPTO. Little known Worlds Inc. (OTCQB:WDDD) learned early on that filing continuation patents was the secret to broadening the scope of a previously filed patent. Unlike Vringo with only 2 search patents, Worlds has received 8 patents. These 8 patents relate to computer architecture for three-dimensional graphical multi-user interactive virtual world systems, also known as Massive Multiplayer Online Role Playing Games (MMORPG). They are spaced out over a period of years from 2001 to as recently as 2013. These patents are continuation patents, originating from the first, which was filed in 2001. So many of the patent plays of today, like Parkervision (NASDAQ:PRKR) and MGT Capital (NYSEMKT:MGT) miss the opportunity to broaden the scope of their held patents, and run the risk of becoming subject to reexamination hearings focused on competing prior art. One of the most famous examples of profiteering from continuation patents was that of Jerome Lemelson and the bar code readers we all have grown accustomed to seeing. Lemelson filed a series of continuation patents over 30 years to receive a very broad patent on bar code readers. His final patent was issued in 1984 when bar code readers were already part of mainstream retailing. Lemelson succeeded in collecting billions in license fees. Some time later, the USPTO successfully won an appeals decision to alter continuation patents, but later decided against implementation as a result of a change in Administration.
Conclusion: Vringo Wins With or Without the USPTO
While others are confused to the issues surrounding the USPTO, some investors have a clear understanding and likely will profit. The timeline favors Vringo for an expeditious judicial ruling on the royalties motion. Further if an appeal is accepted by the U.S. Court of Appeals, which is dubious at the moment, a resolution to the action would follow inside a 12 month period. Based on the facts of the case, Google's forthcoming appeal would more than likely be rooted in the graphs and boards presented by the plaintiff at trial, a weak presentation at best. Any possible stay of royalty award would be highly unlikely, given that Vringo's certification of patents will stay in force and the obvious 7th Amendment issues that would develop. The end game is clear and visible; Vringo wins with or without the USPTO, but a lesson is learned. Vringo would be wise to strengthen its patent holdings, as in the case of Worlds, Inc., by utilizing continuation patents as one defense against claims of this type in the future.
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.