James Altucher says he has read all the relevant patents and Google's description of how its search monetization works and believes that Vringo will have a strong case against Google.
-Blodget, Business Insider
Wow, what is the world coming to? Google (GOOG) is going to zero and Techcrunch is publishing articles on speculative penny stock plays. So, if you haven't heard already, James Altucher wrote a controversial Techcrunch article over the weekend in which he highlighted a micro cap tech stock called Vringo (VRNG) that he believes could be on the verge of patent related windfall. His article caught enough eyeballs that it now seems even Henry Blodget, the former internet analyst, is relying on him for expert patent analysis in what is going to probably go down in history as the peak of the patent trolling cases.
If you ask me, the whole thing is very entertaining. Here is James Altucher, who loves to write about his get rich quick adventures, right in the middle of another legal bubble 'scheme'. This is a guy who clearly has a passion for trying to turn nothing into something by simply relying on his amazing ability to promote/hype. But it is not like there are not plenty of dreamers out there who think the same way. What makes Altucher unique is that he actually does something about it, and then afterwards will come out and admit to the whole world that he was in fact just trying to make a quick buck by playing on peoples willingness to buy into the hype.
In 1999, and he has told this story countless times, he came up with the catchphrase, "First there was the wireLINE internet, then there was the wireLESS internet, which would be ten times bigger." He then went out and found a wireless company to buy, and with no money whatsoever secured an LOI. He then married this LOI to his catchphrase and managed to raise $30 million from investors. Pretty impressive stuff, and Altucher rarely holds back when telling this story. Consider this quote:
So we closed on thirty million dollars and bought our first company. Then we bought a second company. A consulting company called Katahdin. They had nothing to do with wireless but they had profits. We'd bury them in the IPO story but make use of their profits.
-Altucher, How I Screwed Arafat out of $2mm
How many people will honestly admit they set out to make a $100 million by duping a startup into thinking they were established wireless investors looking for growth acquisitions, duping investors into giving them $30 million by leading them to believe they know the wireless space and are in the process of acquiring attractive assets, and then duping the public into investing into all this duping by attempting to complete a reverse merger IPO as quickly as possible? Not many, and in Altucher's case the promoting didn't end with his wireless venture. A few years later the Web 2.0 mania started, and he was back to his old tricks of trying to turn nothing into something, only this time his focus had shifted to social networks and stock investing.
Consider this excerpt from an interview with Mixergy.com in which Altucher recounts his stockpickr.com adventure (read the whole thing if you have time as it is actually pretty fascinating):
James: Okay. You know, that's an interesting phrase, a social network for stock traders, because that's how I described it, actually, at the time, as "MySpace for finance," because MySpace had just been sold for $500 million or $900 million or whatever it was sold for. But the phrase itself was bullshit. I just used that phrase because that was the hot phrase at the time.
There's kind of a back story, if you don't mind me taking it two steps back. What happened was . . . well, I'll start at the beginning and then move backwards. So, Tom Clark, the CEO of TheStreet.com, called me up and said, "Hey, let's get together and exchange ideas. I want to see what you're up to." And we would get together for breakfast once a year and exchange ideas. So I figured, OK, I've got two weeks to come up with something. I called up India and I said, "I'm going to start this business. I'm going to send you a spec, and I need to you send me back screenshots as if the site is already finished. I completely spec'd out Stockpickr - MySpace for finance - and I met with Tom Clark. I said, "Tom, you're asking me what I'm up to. It's too late, I'm already done with the site." I showed him all these screenshots, the front page, the user pages, everything. I said, "I'm already talking to everybody about my new site." I had sent out some emails. He said, "Why are you talking to everybody else? You're one of us, you've got to do this with us."
So by now you should have a pretty good idea of where I am going with this. The fact that James Altucher is a promoter and investor in what will be a reverse merger patent holding company with hopes of striking it big by suing one of the world's most valuable technology companies over their core technology is not shocking. If anything I am more surprised that he is not back at it again leading a transaction like this as it is right up his alley.
The goal here is to create something out of nothing. That is exactly why Innovate Protect raised $1.4 million from a hedge fund to buy their patents back from their former employer nearly 15 years later. Lycos couldn't figure out how to monetize this technology themselves, and then even when others succeeded in demonstrating how; they didn't have the smarts to go to these companies and strike some licensing deals.
Now, after almost a decade of evolution in search and the online advertising business, they have appeared to claim their riches. Of course it is no coincidence this is occurring precisely at the time that the biggest operating companies in technology are engaged in their own intellectual property world war. This claim is no different than the Yahoo (YHOO) lawsuit against Facebook (FB), except Yahoo can still argue that it is trying to protect its own operating business. Problem is that doesn't really work very well when you consider that Yahoo has been very privy to what has been going on at Facebook (they nearly bought the company), and that Yahoo could have sought to enforce these patents years ago.
Which is why I don't see this as anything close a Rimm (RIMM)/Ntp scenario even if Donald Stout is involved. Ntp went after Rimm and other wireless companies over push email right as the technology was catching on. They tried to license their patents and were quickly rejected. That is not what Vringo /Innovate Protect is up to here. They want to make fast money of the combination of a threat and the current bubble in tech patent portfolios by having the stock market capitalize them before a single argument is heard. Altucher gets that, and that is why he wrote the article he wrote.
Vringo/Innovate Protect has managed to pull off what he didn't pull off in 1999. They have turned nothing into something by completing the market bubble scheme cycle and getting to an IPO before the market has time to figure anything out. No matter what the outcome of the case, they have already succeeded. (Makes you wonder how the current owners of Lycos feel about this sale, and what pitch was used to get them to part with these patents.) But if the technology business is going to become about registering a concept and then sitting around waiting for someone to do all the hard work in terms of hiring people, marketing, and navigating a competitive landscape; innovation will stagnate and lawyers will get rich.
Who knows, maybe we will eventually have IP law firms filing to go public to take advantage of this madness. As for the probability of Google going to zero because of this lawsuit, that too is a big fat zero. You have better odds playing Mega Millions. Google has one risk in front of it and its Facebook Connect and the web ecosystem being built around that product. If Facebook continues to morph into the Web's OS, Google will suffer. As a Google shareholder that should be what keeps you up at night, and not some lawsuit whose best case scenario is a couple hundred million dollar settlement after five years in court.
On a side note, I saw on Techcrunch that Altucher got a lot of heat for writing this article and being invested in the stock. I'd have to say that I don't think that is fair. If you have plenty of people following what you write, there should be no issue with you pitching your thesis after you have invested if you disclose your interests. Anyone who has read anything Altucher has written or the type of stocks he likes to invest in would immediately recognize that this 'story' is right up his alley. He is simply leveraging the fact that he has an audience, has very good knowledge of markets when it comes to smaller cap stocks and what drives them, and is an amazing promoter.
On the face of it, he sold a good you are buying a cheap lottery ticket story. You can't blame him for that. If you are going to criticze anyone here, the focus should be on whether or not this article with that headline is appropriate for Techcrunch or whether Business Insider bothered doing any real due diligence before they did a story on it. I mean how hard is it to call a patent attorney and ask some questions?
By the way - For the sake of innovation I hope Google goes 'thermonuclear' on this one, but then again considering the Apple (AAPL)/Android saga maybe they had this coming. Also, it would be interesting to hear if anyone knows why Microsoft (MSFT) was not named in this complaint?
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.