Click to enlargeVirnetX (NYSEMKT:VHC) reported this morning with quarterly revenues of $15,538 which was a large increase from last years quarter of $3,233. Yes all those numbers are in dollars not thousands of dollars. Of course they go on to say the vast majority of these revenues are going away in the near future. Somehow I don’t think these revenues are going to be greatly missed. Now they do have $74M in cash sitting in the bank and only burn $2.4M per quarter.
So what does that make a company that basically in the near future will have zero revenues and is relying on its IP to provide meaningful revenues in the future? Below are two common Patent Troll definitions:
A patent troll is a derogatory term used to characterize a company that acquires patents for the purpose of extracting patent royalties from product developers.
A narrower term is non-practicing entity (NPE), which denotes a sub-category of patent trolls whose only activity in a domain is patent trolling. One definition of NPE is:
An entity that does not have the capabilities to design, manufacture, or distribute products that have features protected by the patent.
Given where VirnetX has come from there is no doubt since they acquired the patents from Science Applications International Corporation they meet the first definition. Now the second definition as of today is also accurate. If they actually had any products based on their technology then there would be revenues. The simple conclusion is today VirnetX is a Patent Troll by industry accepted definitions. But as often heard on Senfield “Not that anything is wrong with that.”
If your going to be a Patent Troll there is none better to be than one with a huge hoard of cash and one very solid win in the bank. Their first win not only validated their technology but has led to the clear path forward of going after the next set of infringers.
I strongly suspect after watching this new litigation unfold that most of these companies are posturing to cut the best possible deal for themselves going forward. There is no doubt if they did not put up some type of defense their negotiating position would be much weaker so expect whatever new strategies they can come up with to help their eventual settlements.
Now I will say if VirnetX was actually using their technology in current products they were selling it would be much easier to show damages and the value to other companies. Obviously VirnetX is working on their own products and eventually they will get there but in the near term they will be King of the Patent Trolls and that is a nice throne to rule from.
Disclosure: No position