Patent Litigation is a blooming business and this summer's infringement line-up is stacked and packed with high-profile opportunities. Investment houses have been cautiously participating in these high-risk ventures on a limited basis, mainly for institutional customers, and to lesser degree small and mid-cap funds. I would argue that a mutual fund exclusively devoted to these investments would better serve investors looking to capitalize on today's infringing titans. For now, it's a self service buffet and winning here requires understanding the infringing tech, and becoming an expert in the business of the current and future defendants. There's plenty to choose from but Google (GOOG), Activision Blizzard (ATVI) and Groupon (GRPN) are provoking the most interest today. Let's examine the cases.
Vringo (I/P Engine) vs. Google et al.
This case is nearing the end as Vringo (VRNG) won a unanimous jury verdict last November in a federal district court. At issue is Google's reputation and potentially up to $1.4 billion in royalties and damages. For its part, Google has been on the losing side of several key post trial motions and their latest response, to a very critical plaintiff royalty motion, has relayed a sense of utter desperation. The response was loaded with caustic idioms and references to a design around ruse, that coincidentally failed to get any traction from a previous JMOL. One could almost hear the clunk of the kitchen sink being thrown into the decision process, when statements concerning USPTO final actions were read into the response. Who was Google trying to confuse? The USPTO process allows the patent holder to retain all commensurate rights while the patent certificate stays in force, and these patents are not going anywhere for the next 5 years. Does Google really believe Judge Jackson will grant a 5-year stay? That would make sense in North Korea where Jackson could be an employee of the executive and the judicial branches, possibly an idea shared by Kim Jun-un and Eric Schmidt. Thankfully, this is the USA and our system of government affords proper penalties for companies that recklessly desire to steer into judicial brick walls. Vringo stands to win big as reputation is everything to Google, even at the cost of a black eye or a billion dollar royalty.
Activision Blizzard vs. Worlds, Inc.
In less than 30 business days Activision Blizzard's courtroom drama may become more popular than their multibillion dollar Call of Duty gaming franchise. This $5 billion dollar a year software giant is on a legal collision course with small unknown Worlds, Inc. (OTC:WDDD). What's the fight about? Worlds contend that Activision has been using their patents in three-dimensional graphical multi-user interactive virtual world systems, also known as Massive Multiplayer Online Role Playing Games (MMORPG) for years without a license and with knowledge. World's is a PE (practicing entity) and Activision stands to lose big as Worlds comes locked and loaded with 8 key patents in its arsenal. A loss for Activision could spark an avalanche of royalty payments to Worlds, affecting all of the players that make up the $65 billion dollar MMORPG industry. The Markman Hearing, to establish the claim construction, begins June 27, 2013. Activision's exposure here could exceed $700 million, as past willful infringement seems a clearer road than the Vringo vs. Google case. Coincidentally, Activision recently reported a cancellation to its plans to repurchase shares held by its parent Vivendi. The Worlds case is one of the few cases, in my opinion, where the exposure is such that it makes sense to purchase the Plaintiff. Activision does not possess the resources of Google, and the decision to purchase Worlds may prevail over the potential loss risk. Regardless investors could be well rewarded for proper due diligence in this case.
Blue Calypso vs. Groupon et al
Struggling online advertisers Groupon, Yelp (YELP), and IZEA (IZEA.PK) already have enough problems trying to grow their businesses. Enter Blue Calypso (OTC:BCYP) an upstart social advertiser that is looking to get paid for its peer-to-peer advertising patents, specifically U.S. patents, 7,664,516 and 8,155,679. The collective group of defendants is in no position to lose, and for this reason I believe the upcoming November 7, 2013 Markman hearing and its ensuing claim construction findings may migrate into a settlement conference. Protracted litigation just doesn't fit the business model, for any of the defendants. However understanding Blue Calypso's peer-to-peer ad patents, in my opinion, is more critical than knowing the defendants. While doing research I gained valuable insight that concluded direct mail coupon giants such as Valassis (VCI) would be smart to augment their mature declining businesses with technology such as this. This compares to the evolving paper directory publishing business that in its prime fueled the lion's share of profits for AT&T (T), Verizon (VZ), CenturyLink (CTL) and Sprint (S) just to name a few. These industry titans, to some degree, have successfully embraced an online format or divested their directory publishing businesses to entities that rely on this concept for future growth.
Invest like a professional. Become more knowledgeable in the technology, the business of the defendants and follow the cases closely. Timing is critical in younger cases such as Groupon, and Activision Blizzard. However, there are still great entry points in mature cases like Vringo vs. Google, courtesy of those that lack the knowledge to decipher the technology, the litigation or the process. Consider diversification as a key to a winning investment formula and exercise the patience required to enjoy the profits.