Seeking Alpha
Value, growth, long-term horizon, biotech
Profile| Send Message|
( followers)  

Summary

  • Vringo has limited options left to address today's ruling.
  • The best option would be an en banc hearing, which might be granted based on the dispute over the finding of the majority.
  • The verdict today was a huge blow to Vringo, and a clear win in favor of Google, as Google will no longer have to pay damages.

Author Update Dec. 15, 2014, 2:27 PM

The Federal Appeals Court denied Vringo's request for an en banc hearing. Vringo plans on appealing to the Supreme Court, but the odds of the Supreme Court accepting the case are relatively low.

Vringo Inc. (NASDAQ:VRNG) investors got a shock Friday when an appeals court voted 2-1 that the patent Vringo asserted in litigation against Google Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) was obvious. This news was obviously good for Google investors and helps to prevent Google from paying a verdict which was estimated to be worth hundreds of millions of dollars. This verdict was a huge blow for Vringo, as by finding that the patents were obvious the entire verdict is invalidated, essentially leaving Vringo with not collecting any damages.

Background

As a quick background on the case, Vringo asserted two patents in trial against Google, claiming that Google's AdWords system infringed upon Vringo's patents. A jury agreed and ruled in favor of Vringo, awarding Vringo 3.5% of 20.9% of Google's US revenues from AdWords, and finding past damages as well in the amount of $30 million. The jury found that the patents were not anticipated and that Google infringed upon all of the asserted claims of the patents in question. Upon request from Google, the district judge refused to invalidate the patents as obvious. The district judge later increased that amount to account for continued infringement. Google as you might imagine disagreed with the verdict and appealed the decision. Vringo also appealed another aspect of the decision, specifically regarding the district judge's findings around the issue of laches.

As part of the process the USPTO was asked to review Vringo's patents and upheld the validity of both of the patents in suit. This was an important step for Vringo, but not the end all be all of the obviousness question. It is important to note that the judicial system operates independently of the USPTO, hence while a judge may take a USPTO decision into account, it is not bound by the decision. That is why we saw the verdict today that the patents were obvious, even though the USPTO believed that the patents were valid and were not obvious based on prior inventions.

What Vringo's next steps are

While the decision was a blow to Vringo, the company does have a few steps that are possible moving forward. Upon losing in the appeals court, Vringo can request an en banc hearing, essentially asking for all of the judges in the appeals court to rule on the matter. This is Vringo's most likely recourse. Should the en banc hearing be granted, it would greatly delay the process, however, Vringo would have a chance of overruling today's decision. If the hearing is denied, Vringo could appeal to the United States Supreme Court. This is, admittedly, the less likely to be successful of the two options. The Supreme Court is unlikely to take the case. Thousands of cases are appealed to the Supreme Court each year, and the court only takes a handful of the cases for a hearing.

Why Today's Decision?

The court found that the prior art essentially anticipated Vringo's patented invention, and that it would have been obvious to someone with average skill in the industry to create Vringo's process. Vringo's patents essentially combined content based and collaborative filtering of searches. Both of these methods were created before Vringo's patent, and Vringo found a way to combine both of the methods. The issue for Vringo is that today the appeals court found that it would have been obvious for anyone with average skill in the industry to combine both of the methods, and that the prior art anticipated the combining of the methods. Vringo argued throughout the proceedings that while both methods existed, there was what I would describe as a wall between both of the methods, and neither side anticipated combining the methods. For any of you that it went way over your head, the court found that through combining both methods, and taking into account a user's query, it would have been obvious to create a targeted search and advertising platform for the user. Which is essentially what Google does with its AdWords system.

En Banc Hearing, Why It Might Work

Google repeatedly asked everyone to find the patents were invalid because they were obvious, the jury disagreed, a district judge disagreed and the USPTO disagreed. Clearly, there is a great deal of dispute as to whether or not these claims can be found to be obvious. One simply needs to look at the dissent of Justice Chen in order to see that there is a dispute about the application of the law from the majority's opinion. Furthermore, it is likely that the entire court will want to review, as it is always troublesome when an appeals court overrules the verdict of a jury in such a complex case in which the jury heard days of testimony on both sides. Remember that the decision of the majority must correspond to the testimony that was entered at trial. Justice Chen hit on this point in the dissent stating that:

"In support of its suggestion that one of skill in the art would find it obvious to use the readily available query, the majority cites the testimony of the Defendants' expert: As [the Defendants' expert] explained, the query would be just "sitting there" with the results of a search, and it would have been obvious to one skilled in the art to "keep around the query and use that also for filtering." I find this testimony inadequate to support the majority's conclusion. The expert's "sitting there" explanation tells us nothing about whether one of skill in the art in 1998 would have been struck by common sense to modify collaborative filtering systems so as to incorporate search queries. All prior art references are "just sitting there" in the metaphorical sense. What is needed-and what is missing from the cited testimony- is some explanation of why one would use the query as the asserted claims do. "

In the dissent, the judge is attacking the majority opinion for essentially extrapolating something that wasn't in the record. The testimony of Google's expert, in the eyes of the dissenting judge, was inadequate to support today's decision. With that in mind, the decision may get reversed.

Standard for En Banc

Typically, en banc hearings are reserved for complex cases, cases that are of public importance, or cases that appear to conflict with a prior ruling of the court. Well, here we have a very complex case in the litigation versus Google, and I would imagine that behind closed doors the dissenting justice will push hard for an en banc hearing. Remember, though, that simply granting the hearing does not mean that Vringo is going to win. It is very possible that the en banc hearing is conducted and that Google will still win, which would be a large blow to any hopes that Vringo may have left from today's decision.

Final Thoughts

Today's verdict was a big blow to Vringo, regardless of which side you are on. Vringo's only chance lies in achieving an en banc hearing from the appeals court and trying to convince the court to overhaul the panel's decision. This will be tough but most definitely have better odds than the Supreme Court accepting the case on appeal. While Vringo's options are limited, they are not out. Unfortunately, should Vringo not be able to get today's decision overturned, it will be hard to justify the continued price valuation for Vringo based solely upon other litigation, and will make it hard for Vringo to collect any amount of money in the future based on the patents in question. Google clearly benefits from today's decision, and will be absolved of having to pay damages should the decision be upheld.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Vringo: Next Steps After A Disappointing Decision Versus Google

Additional disclosure: I have previously owned shares in Vringo, but have not had a position within the last three months.