Microsoft Settles With Vringo: Is Microsoft Using Vringo In A Proxy War Against Google?

| About: FORM Holdings (FH)

Today on May 30th Microsoft (NASDAQ:MSFT) entered a settlement agreement. Vringo (VRNG) filed an 8k this morning with the SEC. We believe that Microsoft is looking to partner more with Vringo on a number of future projects involving technology and patents. Less than 1 year ago Microsoft laid out peace conditions to Google (NASDAQ:GOOG). We see Microsoft has made a pledge in regards to transparency on it's patents recently. Google has recently lost cases against Microsoft with it's purchase of Motorola. We see all these trends and more playing into Microsoft's strong ip portfolio and strategy of partnering with Vringo moving forward.

We strongly believe Microsoft sees Vringo currently as a strong bulwark against Google:

"The accusations came from Brad Smith, executive vice president and general counsel at Microsoft, and Horacio Gutierrez, corporate vice president and deputy general counsel at Microsoft. They claimed in a blog post that Google, which now owns Motorola Mobility, is refusing to take a license for all of Microsoft's IP associated with Motorola's products. Next, the attorneys claimed that Motorola Mobility had refused to follow "market rates" with respect to "fair, reasonable and nondiscriminatory" (FRAND) patent licensing."

We referred in this article not too long ago on the specific upside to Vringo from negotiations with Microsoft:

"Microsoft agreed to pay I/P Engine $1 million within fifteen (15) business days, plus five percent (5%) of any amounts Google pays for use of the patents I/P Engine acquired from Lycos. The parties also agreed to a limitation on Microsoft's total liability, which would not impact the Company unless the amounts received from Google substantially exceed the judgment previously awarded. In addition, the companies entered into a Patent Assignment Agreement, pursuant to which Microsoft will assign six patents to I/P Engine. The assigned patents relate to telecommunications, data management, and other technology areas."

We believe Microsoft is looking to work together with Vringo against Google in various ways and this is just starting the long, and profitable process for which Microsoft and Vringo will be partners.

The original settlement talks were in the end of March.

We can see from a recent case that Microsoft is not necessarily so generous with other companies they consider adversaries:

"The USPTO granted MedioStream the '655 patent in 2006, and the '172 patent in 2007.

Later, the patent office invalidated the entirety of the '172 patent, and all but claims 10 and 11 of the '655 patent, a decision MedioStream appealed. The office re-examined the ruling and reaffirmed in November.

Microsoft argued in a motion for summary judgment earlier this month questioning whether MedioStream should be permitted to proceed to trial on the two remaining claims of the '655 patent.

The patents-in-suit are U.S. Patent Numbers 7,099,655 and 7,283,172."

As we mentioned in our last article published in regards to Microsoft:

"Microsoft wants to attack Google in various ways. Vringo IP has multi-varied value to Microsoft. Vringo created the IP which is essential to online ad systems. Google has used this IP without paying. The Vringo inventions were in use and patented before the ideas for Google ever came about.

Microsoft, Nokia, Oracle all have filed antitrust complaints against Google in the EU:

A group of companies led by Microsoft have called on European authorities to launch an antitrust investigation into Google's dominance of mobile Internet usage on smartphones.

The "FairSearch" initiative of 17 companies -- which includes Microsoft (MSFT), Nokia (NYSE:NOK), and Oracle -- claims Google is acting unfairly by giving away its Android operating system to mobile device companies on the condition that the U.S. online giant's own software applications like YouTube and Google Maps are installed and prominently displayed."

We believe Microsoft may contribute a number of other patents to Vringo as superb intellectual property enforcers and legal strategists. The market is starting to recognize a small amount of the potential value of Vringo and it's success will reflect in the stock price upon massive potential short covering and new strategies of monetization not just from lawsuits but from other strategies and technologies they may implement soon.

In conclusion, we believe there is a lot of unseen potential in Microsoft's partnership with Vringo not yet reflected in the stock price which will come to fruition over the next year or two. Just as those waiting for a Google settlement may have bailed out early on dips, other good things are in the works between Microsoft and Vringo which we believe creates major upside.

Disclosure: I am long VRNG, OTCQB:BCYP. 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.

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