With the Vringo (NASDAQ:VRNG) vs. Google (NASDAQ:GOOG) trial date a mere two weeks away, the case has taken on the atmosphere of a major sporting event. Call it the Super Bowl of patent trials, if you will, with all the trappings: celebrity attendees ("Hey, isn't that Mark Cuban?"), a host of commentators scrutinizing every fact and rumor, and a huge fan base milling around and waiting for the event, each placing their bets as the line moves daily.
The hysteria surrounding the trial has hit a fever pitch (and will only increase), and every bit of news (and non-news) variously causes panic, elation, or both. Yet this case remains shrouded in mystery due to the fact that Vringo's immediate fortune hinges on its pending lawsuit, and has nothing to do with fundamentals. Unfortunately (or perhaps fortunately), it's probably fair to guess that 90% or more of the small investors out there have no experiential base from which to evaluate any of the news relating to the litigation.
To help with this experiential deficit, here's a game-day playbook to explain in simple terms the case, what's important, and what's not important. When you find yourself a bit overwhelmed amidst the din of the crowd, this primer will hopefully assist you to stay focused on the most important fundamentals, and why we are here in the first place.
1. Vringo Is A Bet, Not An Investment
First and foremost, let's remember that for virtually all of us, Vringo is not an investment. It's a bet, plain and simple. We will win, or we will lose. None of us bet our hard earned money on Vringo based on its fundamentals. It's all about the litigation.
Once you start viewing Vringo as a bet instead of an investment, you can exhale and stop fixating on the daily stock price. Since you are a bettor, not an investor, the stock price is nothing other than a point spread. You have already placed your bet. Who cares if the point spread moves? It's largely irrelevant, except to those who are using price declines to reduce their average cost basis. If that's not you, then stop checking the ticker. It's bad for your ticker.
2. Don't Bet What You Can't Lose
Every single one of us who threw our hats in with Vringo did so because of its great upside. That upside brings with it a great temptation to over-bet. Don't do that. Close your eyes and think about the day after the trial. Vringo lost. Can you live with that? Can you absorb that loss? If you can't, then think about reducing your position to where you will be able to sleep at night even if Vringo loses half or all its value.
3. What's Important
Although we are only about two weeks from the trial date, there is still a lot of action left to go, in the form of pretrial motions and other legal machinations. Because most of us are not lawyers, it strikes me that these proceedings are causing a lot of insecurity (and even false security), mostly because most people don't understand them. To help you tune out the "white noise," here's what's important, and what you should be concerned about.
Google's Motion for Summary Judgment
By far, the most important pretrial issue is Google's motion for summary judgment (MSJ). An MSJ is a pretrial motion that asks the court to rule that the evidence is so one-sided that there could only be one plausible outcome from the trial, such that a trial would be a waste of time. If the Court grants the MSJ, it will enter judgment in full for the moving party (Google) without a trial. An MSJ is a nuclear missile. If it hits, there are no survivors. See why it's so important?
Fortunately, the common belief (which I subscribe to) is that Google's nuclear missile is using Apple Maps for a guidance system. There is little risk that it will hit. Look for Google's MSJ to be denied. If you want more detail on the reasons for this, I refer you to Falling Icarus' very recent SA article on Vringo's opposition to Google's MSJ.
Motions in Limine (MILs)
Motions in Limine are pretrial motions that are designed to exclude certain evidence from being presented during the trial. The trial judge acts as a gatekeeper to exclude evidence that would unfairly confuse, prejudice, or mislead the jury. The MILs in this case fall into two categories: (1) motions to exclude expert testimony; and (2) motions to exclude categories or topics of evidence.
MILs to Exclude or Limit Expert Testimony
Google has filed MILs to exclude or limit testimony from Vringo's experts, Dr. Stephen Becker, and Dr. Ophir Frieder. Vringo has filed an MIL to exclude or limit testimony from Google's expert, Dr. Keith Ugone.
Dr. Becker is Vringo's damages expert. Google disagrees with Dr. Becker's methodology and damage calculations. The standard for this is whether Dr. Becker's methodology meets the Daubert criteria for expert testimony. I don't think there's any real issue that Dr. Becker's testimony will be admitted. Google will have plenty of opportunity to voice its disagreement with Dr. Becker during cross-examination.
Dr. Frieder is Vringo's liability expert. Vringo intends to call Dr. Frieder to testify on the issue of Google's infringement. Google's MIL seeks to exclude Dr. Frieder's supplemental opinions, which Google asserts were not timely reported. Vringo argues that his supplemental opinions were proper, since Dr. Frieder was entitled to comment on new information that came out in discovery after his initial report was submitted. Bottom line on this one is that this case is a battle of the experts. The trial court is unlikely to exclude supplemental opinions when there are curative alternatives available, such as allowing Google to re-take Dr. Frieder's deposition. This one will probably be denied.
Dr. Ugone is Google's damages expert. Vringo contends that Dr. Ugone's testimony does not meet the Daubert standard, because his method (according to Vringo) is not scientific. Consider Vringo's argument that Dr. Ugone's damages "calculations" do not rely upon any math computations, but is based on an interesting "proxy" method. From what I can glean in Vringo's motion, Dr. Ugone calculates potential damages by using the cost of license agreements for other patents as a yardstick. This is a VERY interesting motion. While Google counters that Dr. Ugone's methodology is well accepted in the industry, I think they have some risk here. Using other license agreements to determine royalties for this case strikes me as trying to set a price for a Porsche based on what somebody else paid for their BMW. Then again, all of Vringo's complaints can be explored during cross-examination, and the trial judge is going to be reluctant to exclude one of Google's important experts in a case that is, to repeat, a battle of the experts. But Google is walking a bit of a fine line on this one. If Google loses this motion, it will be a significant blow to their ability to limit the damages, if the jury decides any are due.
MILs to Exclude Categories of Evidence
Google's MIL No. 1 to Exclude Evidence of Wilful Infringement. This case is ABOUT willful infringement. I expect this motion to be denied.
Google's MIL No. 2 to Exclude Evidence of Google's size, wealth, and revenues, and market value of accused products. Normally, this type of information is irrelevant or deemed likely to cause unfair prejudice. Here, though, the case is really about Google's generation of ad revenues, which comprises the lion's share of its revenues. Most likely, this motion will be granted in part, and denied in part. Vringo should be allowed to introduce evidence of Google's size, wealth and revenues, to the extent they bear upon the issues of damages for infringement, and Google's bargaining power had there been a negotiation for a license and royalty fee. Vringo will be kept on a short leash with this evidence though, so as not to inflame or confuse the jury with the depth of Google's pockets and capacity to pay damages.
Google's MIL No. 3 to Exclude Evidence re: Marketing and Click Through Rate. Click Through rate seems to me to be one of the essentials of this case. There is nothing inflammatory or prejudicial about this evidence, and it seems awfully probative. The real essence of this motion is that Google is asking the Judge to protect it from being hung on its prior published statements about how its search works. Google's motion will most likely be denied.
Google's MIL No. 4 to Exclude Evidence of Google's Pretrlal Conduct. In other words, don't let Vringo tell the jury about our scorched earth pretrial tactics. Not to worry, Google. This type of evidence is generally not admissible before a jury, and should not be here. This motion will probably be granted.
Google's MIL No. 5 to Preclude Evidence of Damages Against Other Defendants (AOL, Gannett, etc.). This will likely be denied. Vringo argues that its damage claims against the various defendants involve joint liability with Google, and so should be admitted. The underlying facts are not clear enough from the briefings to really evaluate this, but suffice it to say that the issue that Google is primarily worried about, i.e., multiple recovery of damages by Plaintiff, can be worked out on the jury verdict form. I don't think this motion is a game changer either way, since in any event, Vringo should have the opportunity to present its case on all the damages it feels it is entitled to.
Vringo's MIL No.1 to Exclude Evidence of USPTO Reexamination, Patent Purchase Price, and Name-Calling. This motion actually covers a lot of different categories. However, the most important part is whether Google will be allowed to tell the jury about its pending request to have some of Vringo's patent claims reexamined and possibly invalidated. I don't think Google has much of a chance on this one, since the reexamination is pending, and incomplete. The patents are presumptively valid as a matter of law, until such time as they are ruled invalid. This has not happened.
Vringo also seeks to preclude Google from referring to the negotiations and purchase price paid for the patents at issue in this case. Google claims that the purchase price is relevant to determine the actual worth of the claims in this case. This is a superficially attractive argument, but in the end, I think this evidence is more likely to be determined irrelevant to the issue of actual damages and royalties due (if any). After all, if you are lucky enough to find a Van Gogh painting at a garage sale, does the price you paid for it really have anything to do with its intrinsic and ongoing value? Google is trying to argue value of the patents, but that's not at issue here. What's at issue is the profits derived from use of those patents.
By far the most entertaining part of this motion is where Vringo is asking the Court to preclude Google from name-calling during trial. Vringo doesn't want to be called a "patent troll" or a "pirate" in front of the jury. Google says it doesn't intend to, but doesn't want to be ordered not to do so. Google will be ordered not to do so.
Vringo's MIL No. 2 to Exclude (Extraneous) License Agreements. This motion is closely connected with Vringo's motion to exclude Dr. Ugone's damages testimony, i.e., Vringo seeks to exclude the license agreements that Dr. Ugone used as a basis for his "proxy" damages theory. If Dr. Ugone's testimony is allowed, which is likely, then the basis for his opinions should also be allowed. Vringo's remedy here is to attack those license agreements on cross-examination of Dr. Ugone, to show that he relied on information that is very dissimilar to the patent claims involved in this case.
Vringo's MIL No. 3 to Exclude Prior Art Witnesses. Google intends to call three inventors to testify concerning prior art patents, in support of Google's attempt to invalidate Vringo's patents-in-suit. These gentlemen are named Cullis, Ortega, and Rose. Vringo asserts that these witnesses were not identified as expert witnesses, and they did not produce expert reports. While this is true, this should not prevent Google from eliciting lay testimony from these witnesses concerning their inventions. The Court has previously denied Vringo's motion for sanctions seeking to strike the prior art references, so it appears as though the prior art is coming into evidence. As such, there is no obvious reason why Cullis, Ortega, and Rose should not be permitted to testify about their prior art. The Court will have to draw a line in the sand somewhere regarding their testimony though, to allow lay testimony but disallow "expert" testimony from these witnesses, since they were never disclosed as such. Expect Vringo's motion to be denied, but for its interest to be protected by an order clearly defining what those witnesses can and cannot say in front of the jury.
4. What's Not Important
Google's MSJ and both parties' MILs are the important stuff. Here's a list of the white noise.
USPTO Reexamination. This is a red herring. The USPTO reexamination process is just that - a process. But it is a long process that won't be done before the trial in this case is completed. It is a non-issue. Maybe it will become an issue in a year or more, but my guess is that most of us taken our winnings or losses off the table long before then. The USPTO process has no relevance to this trial. Don't let it distract you.
Vringo's Stock Price. Unless you are imminently looking to buy more Vringo stock, you really shouldn't care about the daily fluctuations in the stock price. If you have too much exposure in the stock so that you can't sleep at night, then consider selling some, at whatever price you feel comfortable. Above all, if you have bet on Vringo, you are looking only for news that directly affects the trial, or settlement. When this news comes, whether good or bad, you will know it very quickly. Then you can worry about stock price.
Motions to Seal. Both sides have filed motions to seal certain evidence in the record. This doesn't matter. Clearly, there are trade secrets involved in this case that are important to the litigation, but are nevertheless confidential. Motions to seal do not affect the Court's or jury's ability to see any necessary evidence. They just mean that you and I can't see it. Frankly, we don't need to see that information, and at least from where I sit, I doubt I would even understand it.
5. And Finally…
Relax. If you feel insecure, go back and read James Altucher's SA first and most recent articles again to remind you why you are here. If you feel really insecure, you may be in too deep, and perhaps you should be thinking about a secure $300 stock instead of this crazy $3 stock. Remember, for most of us, this is a bet, not an investment. Just take your seat, sit back, and enjoy the game.
Disclosure: I am long VRNG. 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.