Vringo's Alpha Is Set To Reverse

| About: FORM Holdings (FH)

At first glance: recent news is nothing but bullish for Vringo (VRNG), which is suing Google (NASDAQ:GOOG). Vringo claims Google and others are infringing on patents it acquired, which claim a legal monopoly over a wide range of ideas in search engine filtering and advertisements.

The news is that Apple (NASDAQ:AAPL) prevailed over Samsung (OTC:SSNLF) in a trial court to the tune of a billion dollars. Apple sued Samsung for hardware/software design patents in mobile devices.

The specifics of the lawsuit are not directly applicable to "Vringo v. Google". However, the experience of a non-expert jury handing out a lot of money for a debatable patent is a reminder to our collective consciousness of the vulnerability that companies like Google face. Many investors think Google will settle for 10x Vringo's EV just to remove the risk.

A jury can hear a story of an official-sounding patent, and take the conclusion of intellectual property as self-evident. A technically illiterate jury will be asked to make a decision about a technical issue, and will naturally fall back upon non-technical assumptions. The jury may immediately and intractably visualize Google as a squatter who set up a shop on Vringo's "property" and rented it out to a bunch of companies.

So everything sounds well and good for Vringo traders, who are overwhelmingly bullish on VRNG. Vringo is the hot flavor on Wall Street right now and I'm noticing it come up randomly in investor discussions from energy to biotech.

In a way, the investment community appears to have fallen for the investment story the way jurors are expected to fall for the patent story. But Vringo's victory is far from likely, and there is an immediate chance of the stock declining...

Google Could Win A Summary Judgment Dismissal Based On Prior Art

Source: Enhydris Private Equity Blog

Google is currently attempting to introduce evidence of patents which constitute "prior art". These patents could invalidate the patents of Vringo; it's like Google saying "we thought of it first". My contention is that it doesn't matter who thought of it first; Google did it better. But formally documented prior art is a more expedient way to swat this fly.

Vringo investors should note that Google's legal team is experienced in obtaining non-jury rulings with these types of situations.

On December 13th, 2007 BID for Position, LLC filed a patent infringement lawsuit against Google, Inc., AOL, LLC and Microsoft, Inc. in, yes you guessed it, the Eastern District of Virginia Court. This lawsuit claimed that the Konia patent awarded to BID, LLC in 2007 was being infringed upon by Google Adwords and its customers.

Google won this very similar suit on summary judgment using prior art. Let's keep that in mind. Google is now introducing prior art that should justify summary judgement dismissal of Vringo's case.

Let's remember also that Apple's verdict over Samsung convinced a jury, but has yet to convince an appeals judge. Summary judgement is decided by a judge, not a jury.

But most importantly let's remember what James Altucher told us in the center of his case for VRNG:

Guess what? Google's patent lawyer is Quinn-Emmanuel. They are defending Google. Oh, and here's something funny. Guess who Yahoo's lawyer is? Yahoo is suing Facebook (FB) for patent infringement in the search domain. Quinn-Emanuel. So the same lawyer is both defending and accusing in the same domain. Someone's going to settle. Everyone will settle. If anyone loses this case then the entire industry is going down in the same lawsuit and the exact same lawyer will be stuck on both sides of the fence. I'm not a lawyer but that smells. The trial is October 16 in the Eastern District Court of Virginia and will last 2 weeks. An appeal process can take, at most, a year.

The trial won't last two weeks if the suit is dismissed summarily. Google's prior art patents will be introduced, and this will justify the dismissal.

There is doubt currently about this, as the prior art was not introduced prior to the Markman hearing. But this was intentional legal maneuvering and Altucher himself said Google's lawyers know how to play this game, so what do you think the chances are that Google's patents won't make it into evidence?

How do you like your patent troll extortion scheme when you realize it has to play with a judge, not just a jury?

Vringo's alpha is set to reverse. It is time to sell.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.