In operating a business in the most litigious country on planet earth, companies in the USA are certainly used to being sued again and again whether there's merit or not. Heck, in operating Chasing Crooks, Inc., a commercial collection agency, I can't count the number of times we were frivolously sued over an 18 year period. Unfortunately, that's just the way it is in America and the way it will always be. That said, lawsuits aren't always frivolous and many times serve a greater purpose in the fact that David can compete on an equal playing field with Goliath.
One area involving litigation whereby investors are looking to cash in is concerning companies that claim huge corporations are infringing upon the patents they hold. The technology behind these disputed patents has many times led to large corporations raking in billions of dollars in profits and plaintiffs are diligently demanding their fair share. Many of the companies filing patent infringement suits are very small and often operate solely as a "shell" company. A common term associated with patent plaintiffs is "Patent Troll." There is certainly a great deal of risk associated with investing in these companies, but successful plaintiffs can turn a company with zero revenue into a billion dollar enterprise overnight and this possibility can eventually bring out the fight between the bulls and bears as David attempts to take on Goliath.
There are currently a couple of very interesting stories worth following:
Vringo, Inc. (VRNG) is a company engaged in the innovation, development and monetization of mobile technologies and intellectual property. Yes, you guessed it, it's the newest and hottest patent troll on the block. This is not an easily digested story and one that you could write an entire book about with regard to the possible outcome. One common trait I find that most investors suffer from is overthinking a particular situation, so let's keep it as simple as possible.
Vringo was virtually unknown until March 12 of this year when they entered into an agreement to merge with Innovate/Protect, Inc., a company that owned a group of patents acquired from Lycos, a name that hasn't really been discussed since the 1990's and for all practical purposes, forgotten about. The stock deal was no doubt attractive to both parties and bolstered the team behind Innovate/Protect's patent infringement lawsuit filed last September against heavyweights Google Inc. (GOOG), AOL, Inc. (AOL), IAC/InterActiveCorp (IACI), Gannett Co., Inc. (GCI) and Target Corp. (TGT) for violation of intellectual property rights surrounding "relevance search technology," a technology that Vringo claims is the dominant technology used today in search advertising and a technology that has allowed Google alone to bring in billions of dollars.
With a favorable ruling in the June 4 Markman hearing, Vringo boldly heads to trial on October 16 against the above named defendants and Formula Capital's James Altucher eloquently explains why Google might want to seriously consider acquiring Vringo outright or settle out of court with them before the October showdown.
In the meantime and with momentum at its back after the Markman ruling, Vringo was able to raise $31.2 million and acquire over 500 patents from Nokia Corporation (NOK) covering telecom infrastructure and on August 30, the company stated it plans on taking action shortly through licensing and litigation campaigns relating to the acquisition. In addition to the $22 million that Nokia received upfront, it stands to benefit further if the acquired patent portfolio generates more than $22 million in gross revenue and such royalty would be 35% above and beyond $22 million. This transaction woke up a few bears, as short interest quickly rose from 1.7 million shares on June 15 to 6.4 million by August 31, keeping the bulls' enthusiasm in check.
At the current price of $3.55, Vringo has a current market cap of $206 million dollars and obviously without a favorable pre-trial settlement or jury trial outcome, the stock would take a beating, but on the flip side, the upside could be staggering, especially if the case actually goes to trial and the jury not only finds in favor of the plaintiff, but determines willful misconduct as well.
Worlds Inc. (WDDD) is a tiny company that originated some 15 years ago with the original purpose to design, develop and market three-dimensional music oriented sites on the internet using 3-D technologies. Fifteen years later, an accumulated deficit of $40 million dollars and a business strategy that could just never get out of its own shadow, the company has found new life in attempting to protect its intellectual property by suing Activision Blizzard, Inc. (ATVI)
The lawsuit states that Activision's hugely popular "World of Warcraft" and "Call of Duty" video games have both infringed on Worlds' patents that substantiate a system and method enabling users to interact in a virtual space and including computer architecture in the 3-D environment. Worlds' CEO, Thom Kidrin, states that the company's technology has helped the businesses of virtual worlds gaming and the sale of virtual goods to grow into a multi-billion dollar industry and that the company deserves fair compensation. Just last week, a Markman hearing was set for June 27, 2013, in the Activision case and could set the stage for Worlds' possible leap from rags to riches.
What catches my eye here is a recent conversation I had with Kidrin, whereby he stated that the very powerful law firm of Susman Godfrey L.L.P. has taken Worlds' case on a contingency to include all legal expenses along the way. The firm's Max Tribble is lead counsel in the case and has impressive patent case victories and settlements under his belt, including cases against Microsoft Corporation (MSFT), Dell Inc. (DELL), Oracle Corporation (ORCL) and International Business Machines Corporation (IBM). Tribble stated he welcomes dialogue with Activision Blizzard and other Massive Multi-Player Online Role-Playing Games (MMORPG) game vendors, signaling that the suit against Activision Blizzard is probably the first of many to come against large (MMORPG) companies. With a current market cap of $10 million dollars, there's one thing I can say with certainty, Worlds Inc. will see its stock price either fall to zero or rise to glory and for the moment, neither the bulls or bears are awake since the story is just now departing the infancy stage.