The Vringo (NASDAQ:VRNG) case is once again beginning to heat up. As investors patiently await the decision of the judge in regards to running royalties, Vringo announced a settlement with Microsoft (NASDAQ:MSFT). This settlement with Microsoft is interesting in the fact that Vringo based it upon what Google (NASDAQ:GOOG) is going to have to pay out in Vringo's current litigation with Google. However, in its recent motion, Google says that it would like to enter the Microsoft settlement as evidence.
Google's Motion for Leave to File
Google is of course trying to get the best deal that it possibly can. With all of the talk of future royalties, where does the Microsoft settlement possibly fit in? Well, in this case the future royalties are what would a hypothetical negotiation between Google and Vringo have resulted as the price for licensing the patents. Of course some of these factors have changed now with the jury verdict (see article above), but Google is attempting to use the Microsoft settlement in order to say that this would have been the starting point for future royalties.
However, this motion is nothing for Vringo investors to be scared about, Google is just trying to get supplemental evidence on the record, and will then try to argue that Vringo's royalty determinations are wrong based on the license with Microsoft. The judge will likely grant this motion in order to update the record. However, there are many reasons why the motion is a non-issue
Why the Motion is a non-issue
The agreement with Microsoft did not put a definitive value on Vringo's patents in suit. The terms of the agreement were as follows: Microsoft pays $1 million to Vringo within 15 days, Microsoft agrees to pay an amount equal to 5% of whatever Google has to pay in its lawsuit against Vringo, up to a certain cap and finally Microsoft assigns Vringo with six patents.
Now, the vagueness as to the value of the patents helps to show the brilliance of the attorneys at both Microsoft and Vringo. The interesting thing is that by having the 5% provision in there, they are essentially shooting down Google's case by making the agreement irrelevant. As the agreement's true value is completely contingent upon what Google has to pay. Due to the fact that the amount that Google has to pay has not yet been decided by the judge, this licensing agreement could be worth any sort of amount of money, hardly the definitive licensing history that Google would be looking for if it wanted to reopen the running royalties argument. By adjoining the two cases, Vringo and Microsoft did not put a definitive value on the patents and thus wrote the agreement in such a way that Google would in no way benefit from it.
Also, by assigning patents to Vringo, the true value of the agreement gets even cloudier. No one can put a value on the patents until they are enforced, which is years away and the patent litigation will likely not start at all in time for Google. Due to the fact that the court cannot adequately place a value on the IP given to Vringo, it is therefore unclear as to how much the licensing agreement was truly worth.
The one million dollars upfront payment is interesting, as it is the easiest to assign value to. However, once again it clouds the waters. It is not clear whether the one million dollars is for past damages, future damages, or just simply because Microsoft and Vringo agreed on it. The one million dollar figure is therefore null for Google, due to the fact that it cannot be argued to be past damages (as Microsoft is deemed to have paid past damages through the 5% of whatever Google has to pay which would cover both past and future damages). It cannot be argued to be future damages because of the same argument as above. Therefore, the one million dollar figure, the only thing that would give Google any hope in the matter is completely irrelevant.
What Might Happen Next
The judge will probably allow for Google to file the evidence. The judge will in his ruling then state why the evidence is inconclusive in giving a true value to the patents at hand, and why it is therefore irrelevant before the court. As long as the Judge explains his decision in this context, and mentions that he looked at the supplemental evidence and found it inconclusive or something like that; he will make it so that Google's motion is essentially pointless. Google will likely not be successful in its appeal that the judge was wrong in his consideration of the Microsoft agreement because of the arguments mentioned above by Vringo.
While it might seem daunting at first, the Leave to File supplemental evidence is not at all helpful to Google's side. It is at best neutral, as there is still not a definitive value attached to the Vringo patents. The use of the patents and the 5% of whatever Google pays was a brilliant piece of maneuvering by Vringo and Microsoft, in order to hurt Google. Even if Google were to brief the issue again in light of the supplemental evidence, nothing would change. The judge will likely explain why the Microsoft agreement is not conclusive in defining a value for the patents and just rule the way that he was going to for the ongoing royalties motion. Vringo investors have nothing to be scared of, and all they need to do is wait patiently, for hopefully the judge will hand down his ongoing royalties decision soon.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long 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.