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On Thursday Vringo (NASDAQ:VRNG) released its Q2 results and stockholder update. At the moment, Vringo's most significant activity is its ongoing patent infringement lawsuit against Google (NASDAQ:GOOG) and some of its customers (styled the "I/P Engine v. AOL, Google et al. Litigation"). In that case, Vringo's subsidiary I/P Engine is asserting two patents that are part of a portfolio of patents originally issued to Lycos. Last November, a jury found both patents valid and infringed and awarded Vringo $30.5M for past damages. The judge also recently granted Vringo's motion for about a month and a half of supplemental damages in addition to interest.

Vringo has asked the trial judge to order Google to pay ongoing royalties for any continued infringement of the patents from the date of the jury verdict until the expiration of the patents in April 2016. I previously gave my opinion on how I think the judge will decide that motion. Google is appealing all of the jury's findings for Vringo and Vringo is appealing the trial judge's decision on the issue of laches that severely limited the amount of past damages Vringo received. I have not formed an opinion on the appeal issues because all the appeal briefing is not yet completed. When it is, I hope to be able to share my thoughts on those issues. However, I will note that the PTO recently reaffirmed the validity of at least one of the two patents, so that issue is unlikely to be a fruitful one for Google.

But none of that is what this article is about. Rather, in the Q2 release Thursday Vringo CEO Andrew Perlman said, "We plan to expand our existing enforcement efforts in the United States and internationally. In addition, we have identified an extensive list of potential licensees and will seek to monetize our portfolios through licensing and litigation efforts in the near term." These statements made me curious, so I took a look into Vringo's other patent portfolios to see what patents they may assert next.

Vringo's Various Patent Portfolios

Many people think Vringo is a one hit wonder, with only the two Lycos patents successfully asserted in the current suit and nothing else of much value. In truth, Vringo has amassed several different portfolios of patents, each of which could be quite lucrative to the company. Not only does it have the Lycos portfolio, which includes 6 other patents in addition to the two in the current suit), it also recently received six patents from Microsoft and licensed two patents from Virginia Tech (under federal law, a university can't sell its patents, but instead can only exclusively license them with a right to assert and/or sublicense, which is what happened between Vringo and VaTech). The biggest portfolio under Vringo's belt, however, is the 500 patents and applications it acquired from Nokia last August, roughly 125 of which are U.S. patents and applications. Vringo has already begun asserting some of the Nokia patents in Europe and Australia.

The Quantumstream Portfolio

While all of Vringo's patent portfolios seem quite interesting, and I hope to be able to spend more time looking in to each in the future, there is one other portfolio of patents held by Vringo that caught my eye most immediately. In the fall of 2012, Vringo's wholly-owned subsidiary I/P Engine acquired a portfolio of two patents and one patent application from a company called Quantumstream Systems, Inc. One thing I noted immediately is that the Quantumstream patents last well past 2016 when the two Lycos patents in the current Google suit expire. In fact, one of the two issued Quantumstream patents doesn't expire until 2023. The other expires in 2020. Another interesting fact is that the portfolio is still growing, as Vringo just filed two more applications for additional patents in July.

For those of you who aren't patent attorneys, it's important to understand that you can apply for as many patents as you want from the same original application so long as you have a patent application in the family tree that is still currently pending at the time you want to file another application. For example, say you invented automobiles and filed a patent application describing your invention. You can ask the Patent Office to give you one patent on red convertibles, then file a derivative application in which you ask for a patent on black sedans, then file another derivative application in which you ask for white limousines, etc, so long as you ask for those extra patents before the previous patent application is issued as a patent or goes abandoned. Many patent applicants will file such "continuation" applications just before the "parent" application is issued so that they always have an application on file with the Patent Office in case they think of new manifestations of their invention. This allows the applicant to continually get specific patents on all the various embodiments of their invention, rather than be limited to just the first original patent. As may be obvious, it is very wise patent application strategy to continually have applications on file and, so, Vringo's seeking to expand the Quantumstream portfolio even after its acquisition makes complete sense.

The two Vringo Quantumstream patents that have issued so far are U.S. patent number 7,831,512 that issued November 9, 2010 ("the '512 patent"), and U.S. patent number 8,315,949 that issued November 20, 2012 ("the '949 patent). If you look, you'll see that the '949 patent actually says on it that it is assigned to I/P Engine, Vringo's subsidiary, as that patent issued after Vringo bought the Quamtumstream portfolio last fall. Otherwise, the '512 and '949 patents are virtually identical in all respects except for their claims, which are the long winded single sentences at the end of the patents that specifically describe what they cover. This similarity between the drawings and written description of patents in the same family is common.

The abstract of the patents gives a good overview of what they cover:

[A]n electronic marketplace that matches units of content from secondary content providers with suitable vacancies from primary content providers. ... [T]he electronic marketplace automatically matches content offered by secondary content providers with vacancies offered by primary content providers thus filling the vacancies in these containers through a real-time content trading, placement, and distribution system

While the abstract doesn't mention advertising specifically, such a use of the invention is discussed in detail in the body of the patents. For example, beginning in column 7 at line 59, the '512 patent states:

One of the many applications of the marketplace is in the field of advertising. The marketplace system provides a number of benefits over traditional advertising systems. First, the marketplace enables digital content providers to dynamically seek the most favorable placement opportunities based on real-time data. Digital content providers can create robust campaigns that match digital content in real-time to any targeted criteria, including full consumer profiles, contextual content, and search keywords. Using the marketplace, digital content is placed in real time on any suitable medium that draws a mass audience finding the best audience hour-by-hour, or even minute-by-minute, as traffic or consumers change.

Finally, because a patent's scope is defined by its claims, and not what is in its abstract and written description, here's an example claim from the Quantumstream patents:

1. A method for creating within a primary content of a digital medium a vacancy, the vacancy including a spatial and/or temporal region within the primary content, comprising:

defining the vacancy with at least one data processing system comprising at least one memory for storing instructions and at least one processor for executing said instructions by associating attributes that describe the vacancy with the vacancy;

reserving the vacancy, with the at least one data processing system, as a designated region in the primary content of the digital medium to be filled by a secondary digital content whose attributes match those of the vacancy,

wherein the attributes of the vacancy are used by the at least one data processing system to determine how and/or when the vacancy is to be filled by the secondary digital content.

That is claim 1 from the '949 patent and I'll return to it later after describing Facebook and Google's advertising systems.

Potential Infringers Facebook, Twitter and Google

While comparing pictures is not the way patent infringement is determined, drawings can still make a substantial initial impression on judges and juries in showing how an accused infringing system is similar to a patented invention. I like to use pictures whenever I can, because they help explain my points. For that reason, I've included below three pictures. First is how ads are displayed on Facebook (NASDAQ:FB). Second is how Google depicts its advertising systems (AdSense and AdWords). Lastly is Fig. 2 from Vringo's Quantumstream patents.

From these images, the similarities between Vringo's patented advertising distribution system and both the Facebook and Google advertising systems are quite striking, at least to me. They all involve filling a vacancy on a main content page with customized ads. I wasn't able to find a good image to use of Twitter's advertising system, but since its "promoted tweets" system seems to work similarly to Facebook's newsfeed ad placement, I think the infringement analysis would be similar. The bottom line is that the Quantumstream patents relate to embedding ads into content where the ads are selected based on the personal characteristics of the content within which they are being placed. That sounds exactly like what Facebook, Google and Twitter do.

FACEBOOK

(click to enlarge)

GOOGLE

VRINGO QUANTUMSTREAM PATENTS

(click to enlarge)

While pictures may be helpful, a true patent infringement analysis requires a comparison between the language of a claim within an asserted patent and an accused infringing system. Below is a chart doing that, comparing the claim I set forth above to both the Facebook and Google advertising systems.

'949 Patent, Claim 1

Facebook

Google

A method for creating within a primary content of a digital medium a vacancy, the vacancy including a spatial and/or temporal region within the primary content, comprising:

This is preamble language and is generally not required to be performed by the accused infringing system for infringement to be found.

This is preamble language and is generally not required to be performed by the accused infringing system for infringement to be found.

defining the vacancy with at least one data processing system comprising at least one memory for storing instructions and at least one processor for executing said instructions by associating attributes that describe the vacancy with the vacancy;

Facebook's advertising systems use computers ("data processing system" with "memory" and "processor") to determine personal attributes of a content page (i.e. newsfeed page) within which ads will appear.

Google's advertising systems use computers ("data processing system" with "memory" and "processor") to determine personal attributes of the content page (i.e. Google search results page or AdSense partners' page) within which ads will appear.

reserving the vacancy, with the at least one data processing system, as a designated region in the primary content of the digital medium to be filled by a secondary digital content whose attributes match those of the vacancy,

Facebook's computers reserve space within the content page for the appearance of ads ("secondary content") that are tailored to ("match") the personal attributes of the content page.

Google's computers reserve space within the content page for the appearance of ads ("secondary content") that are tailored to ("match") the personal attributes of the content page.

wherein the attributes of the vacancy are used by the at least one data processing system to determine how and/or when the vacancy is to be filled by the secondary digital content.

Facebook's computers use the personal attributes of the content page to determine what ads ("secondary digital content") to put on it.

Google's computers use the personal attributes of the content page to determine what ads ("secondary digital content") to put on it.

As shown in the infringement claim chart, there seems to be a legitimate basis to allege that both the Facebook and Google advertising systems infringe Vringo's Quantumstream patents. If my assumption is correct that Twitter's advertising system is similar to Facebook's newsfeed placement of ads, it, too, may be infringing Vringo's Quantumstream patent. However, it should be noted that while I am confident in this analysis, it is somewhat crude in that it is not the result of a complete discovery process on the patents and the accused systems, nor have I consulted with any experts in the field. To be sure, a lot of time and effort would have to go in to a lawsuit to determine whether a jury and/or judge would agree with my initial conclusion or not. But, there at minimum seems to me to be a very strong basis for Vringo to bring such patent infringement claims against Facebook, Twitter and Google.

Closing Thoughts

Some may ask why Vringo hasn't provided more details about its future plans and why specifically, it has said nothing about the Quantumstream patents it acquired last fall (other than to say that it had acquired them). One reason not to tell the world what patents you intend to begin asserting is that those who think you may accuse them of patent infringement could then preemptively bring a suit against you in the forum of their choosing. This is why it's best to stay quiet regarding future plans for patent assertion and, thus, I do not take Vringo's silence on what it is contemplating generally, or with respect to the Quantumstream portfolio specifically, to be an argument against my analysis.

If you take Vringo's current market cap of about $276M and remove the cash on hand ($46M) and the jury verdict in the current suit against Google ($30M), you're left with a valuation of only $200M, which seems to me to be much lower than the combined value of (I) the remainder of the current suit (supplemental damages, interest and potential ongoing royalty through April 2016, plus an additional 5% that Microsoft has agreed to pay for a license to the same patents) and (II) its other portfolios. My personal belief is that Vringo could easily be worth two or three times what it is valued at today if it continues to be successful with its current suit and begins litigating and licensing its Quantumstream and other portfolios with similar success.

Source: Are Facebook, Twitter And Google Infringing Vringo's Quantumstream Patents?

Additional disclosure: Please see all my previous Seeking Alpha articles and instablogs for additional disclosures. I have previously been long, short and had no position in VRNG. I am, as of the publication of this article, long VRNG, but VRNG is, in my opinion, highly volatile, as is the litigation process in which it is involved and, therefore, I may change my position in VRNG at any moment for any reason or no reason at all.