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Vringo (VRNG) shares just became a lot more valuable. AOL (AOL) agreed to settle with Vringo for patent infringement. This is the first validation of Vringo patents, and the likelihood of a Vringo settlement with Google (GOOG), just became more probable.

Since Vringo made no announcement, probably due to a confidentiality agreement with AOL, the market is not sure whether or not this really happened. It happened! Here is the court document from pacer.gov, (a paid service), that spells it out:

Case 2:11-cv-00512-RAJ-FBS Document 202-1

Filed 08/06/12 Page 1 of 4 PageID# 3839

EXHIBIT 1

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA

Plaintiff,

AOL, INC., GOOGLE INC., IAC SEARCH & )
MEDIA, INC., TARGET CORP., and
GANNETT CO., INC.
Defendants.

I/P ENGINE, INC.,

C.A. No. 2:11-cv-512-RAJ

JURY TRIAL DEMANDED

[PROPOSED] AGREED ORDER OF DISMISSAL WITH PREJUDICE OF I/P ENGINE'S
CLAIMS RELATING TO AOL'S ADVERTISING.COM SPONSORED LISTINGS

On this day, I/P Engine, Inc. and AOL Inc. announced to the Court that they have settled I/P Engine's claims against AOL relating to AOL's Advertising.com Sponsored Listings. The Court, having considered this request, is of the opinion that their request for dismissal should be granted.

IT IS THEREFORE ORDERED that I/P Engine's claims for relief against AOL relating to AOL's Advertising.com Sponsored Listings are dismissed with prejudice.

IT IS FURTHER ORDERED that all attorneys' fee, costs of court and expenses relating to the dismissed claims shall be borne by each party incurring the same.

Dated: August 6, 2012 Entered:

United States District Court
Eastern District of Virginia

AOL uses Vringo's relevance filtering technology for its Advertising.com product, in the same way, Google uses it for Ad Words, by filtering and presenting search and search advertising results based on the combination of an item's content relevance to a search query and click-through rate from prior users relative to that item. This filtering technology is what makes search engines work so well and why search engines are able to generate such large revenue streams through advertising.

The importance of this settlement is not so much that AOL will be paying Vringo, but that AOL's willingness to settle will make it much more difficult for Google to get off the hook. In other words, if AOL's Advertising.com was infringing, Google's Ad Words probably is too.

Investors need to realize that AOL is infringing on Vringo patents in two ways. Not only is AOL's Advertising.com using Vringo patents, but AOL also uses Google's search products, which makes AOL liable for infringement in that regard also. Today's settlement was only for the Advertising.com part of the lawsuit, and AOL will still need to deal with the fact that it is also infringing by using Google products.

This AOL settlement has greatly increased the likelihood Google settling with Vringo. I don't think Google will risk going to trial at this point, and a settlement announcement before the October 16 trial date would not be surprising.

In my opinion, the market has not yet realized the significance of this AOL settlement. If you recall from my previous article, a Google settlement could easily drive Vringo shares above $30. This AOL settlement just took Vringo many steps closer to that goal.

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Disclosure: I am long VRNG.

Source: Vringo Prevails Over AOL, Google Could Be Next