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Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.

In my last article, I discussed Decision Diagnostics' (OTCPK:DECN) continued legal battles with Johnson & Johnson (NYSE:JNJ). Without rehashing the information, the salient points are as follows:

  1. Diabetes treatment and diagnosis is at least a $38 billion market, with diagnostics comprising an $11.3 billion segment of that market. They are projected to reach $51.2 billion and $26 billion by 2015, respectively.
  2. Johnson & Johnson manufactures a line of devices to measure blood glucose levels, along with disposable strips for use with the aforementioned devices.
  3. Decision Diagnostics has begun manufacture of cheaper more effective strips for use with Johnson & Johnson's devices, marketed under the name Shasta GenStrips.
  4. In 2011, Johnson & Johnson filed a civil suit against Decision Diagnostics, accusing them of violating their patent. This set off a protracted two-year legal battle, now coming to a head.

Recently, Decision Diagnostics filed for and was granted a stay of proceedings in their ongoing case. The timing of this small victory is perfect, as other recent rulings have granted them full authority to market, manufacture, and sell the GenStrip during the proceedings. As such, Decision has begun large-scale shipments of its GenStrip to fulfill sales orders, with over 60,000 boxes shipped as of now.

While researching similar companies that took on much larger conglomerates, I reviewed the case of Vringo (NASDAQ:VRNG) vs. Google (NASDAQ:GOOG). This case offers many interesting parallels that can be applied to Decision vs. Johnson & Johnson.

Google: Don't Be Evil?

Google is a company that hardly requires introducing. Currently sitting at a share price of $1,000 and a market cap of over $300 billion, Google is a titanic company with millions in assets. Much like Johnson & Johnson, Google keeps around $50 billion in cash and equivalents on hand at any given time. With this level of support, as well as one of the best legal teams in the country, they are almost guaranteed a win over smaller components.

Vringo: A Profitable Patent Troll

Vringo is a company specializing in mobile communications patents, as well as other intellectual property. Colloquially known as "patent trolls," companies of this nature have a business model based on filing and buying patents, and then suing companies they think are infringing. Like Decision Diagnostics, they traded at a fraction of the price of their opponent -- in this case an astounding 0.6% at best. Worse, they possessed less than $10 million in cash and equivalents. Even so, they chose to tackle Google's legal team, a move many investors thought was a losing gamble. As with Decision Diagnostics and Johnson & Johnson, this seemed like a David and Goliath story, with a clear ending.

The Victorious Underdog

Yet when the dust settled, it was Vringo who emerged on top. Winning $30 million in damages, and $500-$600 million in possible future royalties, they guaranteed their future prospects for years with a single suit. This more than recouped the expenses of their legal counsel.

A similar victory may very well be in the cards for Decision Diagnostics. The aforementioned stay in proceedings puts additional legal authority in their corner, with the judge concluding they had reasonable grounds. In addition, in a review before a panel of patent judges, it was concluded that many key components of Johnson & Johnson's device were in fact unpatentable and thus could not be violated. This more than anything else makes me conclude a comparable victory for Decision Diagnostics is imminent.

No Silver Lining Without a Cloud

Not all lessons from Vringo are positive, however. There are two major aspects of the case that cause me worry.

First and foremost was the lack of major effect that the announced victory had on share price. Looking at historical data for the stock alone, one would probably conclude that the victory took place in early October, rather than November. This peak was likely due to investor confidence shifting toward a Vringo victory being a foregone conclusion at that point. Thus, when the verdict actually came down the pipeline the market had already moved. In addition, a historically low growth rate and its nature as a patent troll contributed to a reluctance to show dramatic appreciation in value.

In Decision Diagnostics' case I would consider this aspect somewhat offset by a historically high growth rate, and the fact that their aim is to actually market a product. A victory wouldn't just mean a few million in damages -- it would mean an opportunity to make a solid entry into the multi-billion dollar diabetes diagnostic market. That's where, if Johnson & Johnson's fears are any indicator, they would likely make significant penetration.

Click to enlarge image.

My second worry would be cash flow. Before entering into their suit, Vringo made a series of secondary offerings to establish a cash coffer to pay for legal fees accrued during the case. This allowed them to maintain a pattern of negative cash flow until the conclusion of the case. Obviously, being on the receiving end of the suit did not allow Decision Diagnostics to make a similar move. In addition to having put all their eggs in the GenStrip basket, and having been unable to sell their product for the better of the past year has left Decision Diagnostics with a very negative cash flow.

This is why I consider the recent stay to be of such paramount importance. Being able to sell the GenStrip for the foreseeable future allows them to finally recoup some of their expenses and make moves toward profitability. With this new revenue, I think they are far more likely to be able to fight this case as long as necessary.

Rewarding Risks

As with any stocks of this size, especially ones in these legal straits there are risks. In this case the primary risk for Decision Diagnostics would be loss of the suit, which could mean the end of this company. In addition, as a healthcare stock they are highly affected by the recent events in Washington, D.C. Political rhetoric in the United States has become heavily focused on healthcare, and any major paradigm shift there would certainly have an effect on their value.

However, as additional good news emerges for Decision Diagnostics, I find myself more and more optimistic about the future. Judges are consistently ruling in their favor, and while each victory is small they are adding up. Comparing it with previous cases of a similar nature, such as Vringo, makes me conclude that we could see some serious positive movement from this stock in the future.

Disclosure: I am long OTCPK:DECN. 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.

Source: Decision Diagnostics Could Be The New Vringo