Vringo, Inc. (VRNG), a company engaged in the innovation, development and monetization of intellectual property and mobile technologies, less than a week ago launched a new high profile patent infringement lawsuit against security monitoring king ADT Corporation (ADT). This lawsuit follows the previously filed litigation against ZTE Corp. (OTCPK:ZTCOY), and represents the second patent infringement action originating from the Nokia (NOK) patent buy of last year. Savvy investors immediately interpreted and discounted the former Nokia 6,288,641 patent (the use of a mobile terminal to remotely monitor a location) as a non-event. Vringo shareholders are still reeling from the delays of the ongoing Google (GOOG) litigation. Though investors still feel somewhat confident that Vringo is well positioned to succeed with Google and ZTE, the burden of little to no income is a factor not to be discounted. The recent ADT litigation announcement failed to gain any upward share price movement and Vringo has continued to languish. The obvious conclusion - ADT is not a billion dollar win for Vringo. Where does Vringo go from here? Let's examine the possibilities.
With just $50 million in cash, Vringo's next litigation bet appears to be some multiple of ADT's $3.2 billion annual revenue position. With the tech aspect of the patent being home and business monitoring via a mobile device, the target audience will no doubt be iPhone and Android smartphone users. A quick review reveals ADT holding about 26% of the US market, with under 7 million customers nationwide. ADT offers its mobile monitoring ADT Pulse smartphone app cost free to iPhone, Android and Windows Phone 8 users. Considering ADT's home and business market share alone, it's not inconceivable that Vringo could win a small royalty based on application downloads, and possibly a recurring percentage of the monthly monitoring fee. It's far too early to estimate, but 1% of monthly monitoring fees (assuming $30 monthly as an example) may not be beyond conservative estimates. Applied to ADT's revenues, Vringo could be looking at $25 to $30 million a year (before the revenue share that includes Nokia's cut). A successful win with ADT could hasten similar settlements with other fragmented competitors in the industry. However, Vringo investors have been spoiled with dreams of Google billions and this litigation while meaningful will not elevate Vringo share price.
Microsoft to the rescue?
Vringo management is not without options and the recent 6 patent assignments acquired from Microsoft may be Vringo's best chance at reaching another Google size verdict. Particularly interesting to investors is Patent 6,556,983 (methods and apparatus for finding semantic information, such as usage logs, similar to a query using a pattern lattice space) which refines searches by understanding the interaction of associated words beyond their meaning. Further detailed information from the USPTO database clarifies the patent.
"A further goal of the present invention is to help build models based on usage information. Such models will help applications behave in a more intelligent, personal, predictable and adaptive manner. The present invention provides automated searching, classifying, linking and analyzing utilities which surpass, or work well with, heuristics. These situations include cross-domain or application modeling and situations where adaptive models outperform static models.
Thus, it is a goal of the present invention to provide machine understandable representations of users' tasks and/or of data generated by users so that computer performance and human-computer interactions may be improved."- Patent 6,556,983 USPTO
Clearly, this patent has implications to Facebook's (FB) technology and possibly other motives. The least being why Microsoft allowed assignments of this tech over to Vringo which many deem to be a Patent Troll. I've opined in previous articles of the tumultuous relationship of Microsoft's Bing search engine, especially as a provider to Facebook. While Microsoft would never injure Bing's opportunity for growth, it seems incredibly apparent they have a desire to complicate Facebook's legal woes. Time will tell if this patent infringement lawsuit materializes, but clearly Vringo would be reaching for the stars in any damages and royalty claims brought against Facebook.
Vringo's limited cash position makes any possible acquisition more than likely a stock swap. The market capitalization of Vringo exceeds $261 million, and the time for using this could never be better. Vringo CEO Andrew Perlman has publicly stated the company's desire to grow through acquisition. Opportunities abound with companies like Document Security Systems, Inc. (DSS) authentication security technology and On Track Innovations Ltd. (OTIV). The latter just received a favorable Markman ruling in its litigation with T-Mobile (TMUS) over U.S. Patent No. 6,045,043, titled "Contact/Contact less data transaction card." However, none stands out more than Worlds Inc. (OTCQB:WDDD) and Activision Blizzard's (ATVI) patent infringement lawsuit. Worlds claims Activision Blizzard has been using its patents for 3 dimensional game play, via MMORPG, in their core products for years. The wildly successful "Call of Duty" franchise is prominently covered as an example of infringement within the lawsuit. Moreover, should Worlds prevail, all MMORPG game providers would fall victim to this patent. MMORPG is easily a $10 billion industry in the US, and is growing. Noteworthy is a federal lawsuit, settled out of court in 2007 (Worlds vs. NC Soft), that set Activision Blizzard on notice of the potential patent infringement. Moreover, Activision's recent attempt to invalidate the Worlds patent, via the USPTO, prior to the Markman Hearing appears to have failed. The recent disclosure over Worlds Patent 7,181,690 from the USPTO appears to have validated the disputed patent. The presiding Federal Judge has this on the docket for October 17, 2013, and investor intrigue is sure to follow.
Conclusion: Vringo needs a high profile billion dollar opportunity to stay relevant.
Investors bought Vringo with the anticipation of a billion dollar win. Fast forward and the legal battle for the billion rages on. The share price of Vringo lags and investors are hard pressed to find a reason to reward the stock. A $1 million recent Microsoft settlement does little to re-create the excitement and fervor the stock has enjoyed in the past. Investors need only look at Wi-Lan (WILN) as an example of how markets refuse to reward multi-million dollar wins. Patent litigation is the core widget here, and without another Google sized opportunity, investor interest will diminish. There are far too many competing patent assertion enterprises, with lower market capitalizations and greater opportunities. I believe management has the expertise to deliver another billion dollar play. Whether they can deliver it within a reasonable time is entirely another question.