Activision Blizzard's (ATVI) recent court responses to the closely watched Worlds (OTC:WDDD) vs. Activision Blizzard patent infringement lawsuit have left Worlds shareholders shell shocked and seeking answers. The subsequent drop in the price of the stock and ongoing comments made by Worlds CEO Thom Kidrin, have investors wondering if Worlds patents may be up for sale. It's no mystery that Worlds and patent aggregator Vringo (VRNG) share the same investment bankers, Iroquois Capital LP, and that Vringo CEO Andrew Perlman is looking to increase Vringo's IP portfolio. Larger still is the possibility that the recent FTC investigative action, claimed to be inspired by the Google FTC - Justice Email, may be the harbinger for a new set of rules, with regard to patent acquisitions among confirmed NPE aggregators. Vringo may find it prudent and expedient to negotiate acquisition targets already engaged in litigation now, or risk damage to their growth plans as the result of some yet undetermined new level of regulation aimed at deterring patent aggregation among NPE's or PAE's (Patent Assertion Entities). Activision Blizzard battle with World's patents on 3-D MMORPG play may be of interest to Vringo, given the recent Microsoft (MSFT) settlement and how Activision Blizzard fits into their aggressive XBOX expansion plans. Indeed many consider Microsoft's recent transfer of key patents to Vringo to be more than just a settlement.
Activision Blizzard litigation heats up.
As a result of the ongoing Bulger trial, Activision Blizzard vs. Worlds Markman hearing has been postponed 2 months. However, that has not stopped Activision from springing into attack mode with a series of filings, including a key motion designed to end the trial before it starts. The recent motion for summary judgment filed caused a panic among less informed investors, driving Worlds common stock down 25% over a two day period. In this motion Activision insists that Worlds improperly filed the provisional patent application, the core to securing the contested patents, omitting a key "specific reference" to the earlier-filed provisional application that should have appeared in the specification. Conveniently missed in Activision's filing, was the USPTO rule change that affected 37 CFR 1.78 (A) (2) (III) while Worlds' patents was in a pending status, a clear point that Activision deceptively left out of its motion. While this will not stop the upcoming Markman Hearing, and will easily be dispatched by Worlds counsel Susman Godfrey, it does set the tone for more of a brawl than cooperative litigation in the months ahead. Activision has since filed several non-infringement contentions in an effort to build a fence around and exclude some of its various older products, that would not meet the definition of infringement in this case. This action does not infer that the other named products do, however it does establish the value of what will be contentiously fought over. As the preliminary motions play out patent aggregators, like Vringo and Wi-Lan (WILN), and other affected parties will begin to analyze the potential possibilities.
Vringo positioned to make an acquisition.
Vringo has the cash, the market capitalization, and the legal moxie to take Worlds, Inc. or any other patent play to the next level. Dispatching Fortune 100's is the mantra Vringo is building of late. Looking to enhance this legacy is the pending critical decision in the post trial I/P Engine (Vringo) vs. Google (GOOG) motions. Vringo is on the verge of being awarded potentially hundreds of millions, possibly a billion dollars, in a royalty motion against defendant Google. Federal Judge Raymond A. Jackson need only file his decision and Vringo common stock could easily double, if not triple, based on the final results. Taking into account the Google appeal that has already been filed; any possible acquisitions for Vringo would most likely be in the form of a stock swap. Reflecting on today's market capitalization of $247 million, a 7% award would easily increase this to $600 million or more. In this hypothetical example Vringo could easily afford to leverage its stock value with a small amount of dilution to absorb smaller NPE's patent opportunities that could yield more immediate value. The patents Worlds own could be considered foundational, as they could apply to the entire MMORPG Online gaming industry. Infringers like Sony (SNE) and Walt Disney Interactive (DIS) would supercharge Vringo's litigation and further deliver results across literally the top 50 MMORPG gaming giants.
Conclusion: Potential rule changes and market dynamics may force Vringo's hand.
Vringo is very much a publicity seeking litigation machine, and its investors have shown little desire to sit around and wait for the next lawsuit. They want results or court filings and they want them real time. Satisfying this kind of investor base is an unwelcome job for anyone, but it is the key to Vringo's future success. Vringo controls its growth today. However the FTC and the Obama administration have made it clear that NPE's or PAE's are on a very short leash. It is possible that future legislation will restrict patent transfer among NPE's or PAE's. Vringo must balance this equation and the only remedy is acquisition targets that have the star power to reel in the big infringers, the Fortune 100's. The risk to Vringo is clear. The President and the Congress have the power to deal a dangerous blow to the future of NPE patent aggregators. Vringo must move quickly to ensure its continued success both in the changing regulatory landscape and its shareholder base. It appears "in-motion litigation plays" may be the most immediate need for its continued growth.