Google (GOOG) lost in a jury trial to Vringo (VRNG). We have recently seen a lot of confusing misinformation, wild claims, and weird terminology floating around currently, which we believe significantly undervalues Vringo shares and creates a short-term opportunity for more upside potential before a host of positive pending news for Vringo in the Google case, Microsoft (MSFT) negotiations, ZTE (ZTCOY.PK) cases, and others as well. The Federal Judge on the Google case has a history of treating the losing party with skepticism when he perceives them to being stubborn and intransigent with unconfirmed workarounds. We will review what took place in the previous case in Judge Jackson's court in the Verizon v. ActiveVideo litigation and why what is happening now with Vringo is similar enough that if Judge Jackson orders an injunction against Google that a short squeeze is potentially due very soon. We believe from studying these cases deeply that Judge Jackson is a seasoned jurist that will not accept any more excuses from Google and that an injunction is very possible if Google fails to comply or delay further.
Firstly, a "final rejection" definitely does not mean a patent is fully rejected by the USPTO. It is only part of the process.
We are using a definition of "final rejection" by a top group of legal practitioners at premier law firm Fenwick:
"However, a final rejection does not necessarily preclude the applicant from ultimately obtaining a patent. To help understand and address the final rejection, we look at what the final rejection is, when the U.S. Patent and Trademark Office ("Patent Office") typically issues one, and options available to address it properly. We also review strategies to consider relating to final rejections. The final rejection was introduced by the Patent Office to conclude prosecution of an application as quickly as possible. The Patent Office considers the public's interest in limiting prosecution to as few actions as is consistent with a thorough consideration of its merits. Moreover, the Patent notes that neither the statutes nor the rules of practice confer any right on an applicant to an extended prosecution. To advance the prosecution of an application, the Patent Office discourages an applicant from switching between one subject matter to another in the claims presented in successive amendments. The Patent Office also discourages an examiner from switching between one set of
references to another in rejecting claims, in successive actions, that are of substantially the same subject matter."
"On Friday, however, the USPTO issued what's called a "final" action in the reexamination - again rejecting nearly all of the patent claims, including the one asserted against Samsung at trial. "Final" has a fatal ring to it, but it's far less conclusive than that. While the issuance of a final rejection signals the end of this particular phase of the proceedings, we're still a long way from knowing which patent claims will ultimately survive the process.
This final office action is the next step, and there are still a few procedural options available to Apple, as it pointed out in a recent court filing."
Secondly, how is the Judge Jackson case from before relevant?
We believe history repeats itself often in markets, and also in court cases:
"Judge Jackson wrote that the court will not stay the injunction pending appeal, but noted that Verizon has told the court that it would take six to nine months to implement a "non-infringing alternative." Verizon has been discussing a design-around since March 2011, so six months should give it ample time to implement it, Jackson added.
ActiveVideo has already been awarded $139.1 million in damages in the case after a jury ruled that Verizon infringed on the four ActiveVideo patents linked to the case:
- No. 6,034,678 -- "Cable Television System With Remote Interactive Processor"
- No. 5,550,578 -- "Interactive And Conventional Television Information System"
- No. 6,100,883 -- "Home Interface Controller for Providing Interactive Cable Television"
- No. 6,205,582 -- "Interactive Cable Television System with Frame Server"
Verizon initially resisted what Judge Jackson told it to do:
"Verizon claimed that it had one of the co-inventors on the patent, Howard Wan, had discovered invoices for his work on the invention which established a date of conception before the date of the invalidating prior art. Mr. Wan, according to Verizon, was in China and unable to search his Boston-area home for the invoices until after Judge Jackson had granted summary judgment of invalidity.
Judge Jackson found that Verizon bore the burden of showing that (1) the evidence was newly discovered; (2) that Verizon previously exercised due diligence to discover the evidence; and (3) that the evidence was material and likely to produce a new outcome. Judge Jackson ruled that Verizon had failed to establish any of these requirements."
Furthermore, Judge Jackson imposed additional damages against Verizon, which we believe are highly relevant to the Google case going forward:
"A federal district judge ruled late last week that Verizon is on the hook to pay at least US$24.1 million in additional and supplemental damages and interest to ActiveVideo for infringing on four of the vendor's patents linked to interactive television and video-on-demand (VOD). In August, a jury had ordered Verizon to pay $115 million as a result of the infringements, but the telco has previously said it won't be paying ActiveVideo a dime as it mounts an appeal. In a separate-but-connected case, Verizon recently came up short in its attempt to have the U.S. International Trade Commission (USITC) ban several set-top models used by Cablevision Systems Corp., ActiveVideo's marquee customer."
What does this mean now?
If Judge Jackson believes Google is wasting the court's time with an un-confirmed workaround or is being otherwise intransigent, we strongly believe he will impose sanctions on Google or raise the running royalty rate. We still believe Vringo has major upside potential, and that there will be a big short squeeze with over 17.5 million shares short as of recently. Now is a good time to buy due to misallocation by the market and lots of people whom are not lawyers making guesses about basic terminology they do not even understand well. Our contrarian methodology is to do the research and come up with other views which are profitable. We would advice readers and those interested in the case as well that this Verizon case took about two years or so for Verizon to cease fighting after which they had lost in open court. We believe Google will similarly eventually give up wasting money on lawyers' fees and start paying what they owe if Judge Jackson brings the hammer down on them as he did with Verizon recently. We do not believe Judge Jackson will show Google major sympathy, as he did not buy any of the bogus arguments of Verizon, either.