By Thom Lachenmann
We wrote a piece about Vringo (VRNG) over the summer, after the company lost in appeals court in its suit against Google, claiming relief for patent claims. This decision, made back in August, was based on a Supreme Court ruling that "upheld the patentability of software concepts, but barred companies from patenting a mere abstract idea on a computer." How did we conclude in our piece? We made the point that following patent only companies like Vringo and ParkerVision (OTC:PRKR) is generally a path to dilution and poor returns. We said:
In the long run, do we feel investing in companies whose sole source of revenue is derived from potential licensing and games of "gotcha" with their patents? Not quite.
We rate Vringo and patent companies of the sort as ROTTEN (SELL). With the tide seeming to turn on the market as a whole, these are the last type of companies that we want to be in. If we're going to be in equities now, we're going to be in low multiple blue chips.
OPI likes real companies with good old fashioned products. We like to see big margins, little debt, and good cash flow. Patent companies and companies like startup biotechs rarely fit this profile and are unattractive to us.
Since then, the stock has been decimated, trading at about 1/3rd of the value it carried into the summer. Insider buying immediately after the ruling went against the company did well to slow down the exodus from the company's stock, but it's been an extremely disappointing year for VRNG nonetheless.
VRNG shareholders did get a thimble full of good news on Black Friday, however. It was reported as follows on the company's patent infringement lawsuit against ZTE. From StreetInsider:
The High Court of Justice, Chancery Division, Patents Court in the United Kingdom issued its decision in the patent infringement lawsuit brought by Vringo`s wholly-owned subsidiary, Vringo Infrastructure, Inc (Nasdaq: VRNG)., against ZTE`s UK subsidiary, ZTE (UK) Limited.
The Court found that ZTE has infringed the UK part of Vringo`s European Patent 1,212,919 (the "`919 Patent"), which relates to 3G and 4G infrastructure equipment. The Court also confirmed that the `919 Patent is valid as amended.
The Court will address the remedies sought by Vringo against ZTE in a subsequent hearing. The Court`s judgment will be posted to Vringo`s website as soon as it becomes available.
Important to this ruling is that Vringo has other litigation outstanding against ZTE in other jurisdictions. The thought of this case setting a common law precedent is appealing to VRNG shareholders, who big the stock up as much as 18% when this news was made public.
We admit that if Vringo can find success against Google (GOOG) (GOOGL) in their en banc rehearing that the stock could potentially continue its move upward. The company had requested an en banc review of its case against Google and Google customers after it had the case ruled against them in August, which crippled the stock and prompted our first critical look at the company. The company continues to argue "that the majority`s opinion in this case presents important questions of law and is at odds with a series of Supreme Court and Federal Circuit decisions, which do not allow appellate judges to disregard a jury`s detailed findings under these circumstances."
In the short term, Vringo's move to the upside has likely run its course. Intraday, the stock has already fallen back under $1, but is still up 13.51% at the time of this article being published. We will keep a close eye on Vringo for further developments, but for now, we maintain our critical view of the company.
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
