How Long Until Vringo's Verdict Against Google Pays Off?

| About: FORM Holdings (FH)

As many already know, Vringo (VRNG) and Google (NASDAQ:GOOG) have been engaged in a high-stakes patent litigation in the Eastern District of Virginia, over two early search-related patents formerly owned by Lycos. Vringo, in addition to owning the Lycos portfolio (at issue in both the case with Google and a pending case against Microsoft), also owns equity in additional patents sourced from Nokia. Some of those patents have been asserted in Europe against ZTE. More information on Vringo's patent portfolios and strategic objectives is available here.

Vringo secured a favorable jury verdict, where Google was found to infringe the asserted claims of the two asserted patents. Additionally, the jury found that Google had failed to prove that the asserted patents were invalid at trial, even as one of the patents has subsequently (and recently) received a final rejection in a re-examination proceeding that Google had initiated in the United States Patent and Trademark Office. On May 3, 2013, the USPTO issued an office action in connection with re-examination of the '420 patent that rejected all of the pending claims and stated, "This action is made FINAL." Thus, the '420 patent has received a final rejection. The office action can be found here. The application number for the re-examination of the '420 patent is 90/009,991, and the office action itself is available under the tab "Image File Wrapper."

The jury's findings on infringement and Google's failure to prove invalidity at trial were upheld by the District Court Judge post-trial.

While the parties have begun the appeal process, there remains an unresolved issue still before the District Court. Both Vringo and Google are currently briefing the amount of ongoing royalties Google would owe to Vringo based upon the jury's finding of infringement. On May 1, Judge Jackson rejected Google's request to depose Vringo's damages expert and ordered Google to respond to Vringo's motion for ongoing royalties by May 13. Vringo will have the opportunity to respond to Google's brief, and Judge Jackson will likely issue his ruling on the amount of ongoing royalties before the middle of June. At that time, adding the ongoing royalties to the $15.8 million in past damages Vringo won at trial, we will finally see the dollar amount Vringo can expect to collect from Google should Vringo succeed on appeal.

That, however, does not mean that Vringo, absent settlement, will collect any money any time soon. As noted above, even if Judge Jackson awards ongoing royalties to Vringo, Google has already noticed its appeal to the Federal Circuit. Under Rule 62(d) of the Federal Rules of Civil Procedure, monetary damages may be stayed pending the outcome of an appeal provided the defendant posts a bond. Google will surely post a bond against any payments pending the outcome of its appeal. That means Google will not have to pay any past damages (which includes the $15.8 million Vringo won at trial) or ongoing royalties to Vringo until its appeal is over. And Judge Jackson will have very little discretion to avoid this result.

A recent patent case before Judge Jackson exemplifies how Vringo's case against Google could play out. The case was ActiveVideo Networks, Inc. v. Verizon Communications, Inc., 10-cv-00248 (E.D. Va.). In that case, the defendant, Verizon, lost a jury verdict to ActiveVideo and was ordered to pay past damages of $115 million. In addition, a permanent injunction was ordered against Verizon. Verizon claimed it should not be enjoined because it had designed a non-infringing work-around, (similar to Google's claim in its case against Vringo.) Given this, Judge Jackson agreed to stay enforcement of the injunction on condition that Verizon pay a "sunset" royalty-essentially an ongoing royalty that Verizon must pay until it implements its alleged work-around.

Rather than pay the "sunset" royalty, Verizon asked Judge Jackson to stay any payments pending its appeal to the Federal Circuit. Judge Jackson denied this request. He reasoned that the "sunset" royalty was not an award of money damages, as required to obtain a stay under Rule 62(d). Verizon appealed this decision to the Federal Circuit, which disagreed with Judge Jackson. The Federal Circuit held that regardless of the form of the payment, the "sunset" royalty constituted monetary damages. Accordingly, it was subject to Rule 62(d). Thus, Verizon was entitled to a stay of any obligation to pay the "sunset" royalty pending the outcome of its appeal, provided it posted a bond. ActiveVideo Networks, Inc. v. Verizon Communications, Inc., 2011-1538, -1567, 2012-1129, -1201 (Fed. Cir. April 2, 2012).

ActiveVideo illustrates that Judge Jackson has very little latitude to avoid staying Google's obligation to pay any money-past damages or ongoing royalties-to Vringo until its appeal to the Federal Circuit is resolved. He attempted to do so before, but was reversed by the Federal Circuit. Notably, ActiveVideo was in an even better position than Vringo is in right now (higher jury verdict, sunset royalty, and injunction), yet still had to wait for the appeal to run its course.

In our experience, appeals before the Federal Circuit typically take at least one year, but can take up to two years, or longer, depending on the complexities of the case. That means, Vringo should not expect to see any money hitting its bank account until after resolution of Google's appeal to the Federal Circuit-some time well into 2014. And only, of course, if Google loses its appeal.

In the meantime, Vringo (like its fellow patent-enforcement focused peers OTIV, MARA, WDDD, MGT, BCYP, and others) will be hoping for continued progress in its other pending patent cases (the MSFT and ZTE actions referenced above,) and the continued acquisition of additional patent portfolios in order to generate shareholder value. Vringo will need to remain active while it waits to eventually collect on royalties from Google, if it hopes to remain competitive with other companies in this space that are adopting a diversification strategy with regards to patent assets.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in VRNG over the next 72 hours. 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.

Additional disclosure: Markman Advisors owned shares of VRNG, but sold them immediately upon learning of the final rejection of the '420 patent in the re-examination. Some members of Markman Advisors have since purchased put options for their personal accounts in advance of Google's response to Vringo's ongoing royalties motion.

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