Vringo Vs. Google: Vringo's Damage Calculation Looks To Be Reduced

| About: FORM Holdings (FH)

Sorry to be posting so many articles, but this stuff is coming fast and furious.

Today, the Court in Vringo (VRNG) vs. Google (NASDAQ:GOOG) issued an order on Vringo's 2nd motion for discovery sanctions, which orders Google:

"to produce to the Plaintiff within two days of entry of this Order data that has not been produced as to Google, Inc.'s revenues for its properties based in the United States and AUTHORIZES the Plaintiff to supplement the report of its damages expert, Dr. Stephen L. Becker, within two days thereafter. Furthermore, the Defendants may not cross-examine Dr. Becker on the omission of his initial report of Google, Inc.'s revenues for its properties based in the United States."

What on earth does this mean? Based on the information I can piece together from the record, it looks to me like Vringo's damages expert, Dr. Becker, will be revising his damage calculations downward.

Here is the information I am basing this on. In Vringo's Memorandum in Opposition to Google's motion to exclude Dr. Becker from testifying at trial, Vringo states as follows:

  • "Defendants argue that Dr. Becker relies on "[a] grossly overstated royalty base." Specifically, Defendants argue that Dr. Becker's royalty base includes worldwide revenues."
  • "Defendant's position is ironic given that Dr. Becker's royalty base is calculated from the very documents that Google identified by interrogatory response as setting forth its U.S. revenue." [emphasis original]
  • During discovery "I/P Engine [Vringo] thus served an interrogatory seeking a definitive statement of Google's U.S. revenues," and "Dr. Becker properly relied on the veracity of [Google's] response in calculating his royalty base."
  • Google subsequently disclosed "new revenue figures that it now claims show the correct U.S. revenue for the accused products."
  • "Defendant's untimely production of this data is the subject of I/P Engine's [Vringo's] pending Second Motion for Sanctions."
  • "If the Court rules in Defendants' favor to allow them to introduce the untimely revenue data that Google now claims is the 'real' U.S. revenue, then as Dr. Becker testified, he will be able to adjust the royalty base[,]" as "this becomes an issue of mathematics."

Putting Vringo's statements together with today's court order, it appears to me that there was confusion during discovery as to Google's revenue numbers, i.e., whether the presumed U.S. revenue numbers were "cross-contaminated" with some worldwide revenue numbers. It appears that Dr. Becker's damage calculations in this case were based on a total revenue that improperly included some worldwide revenues.

Vringo sought in its motion for sanctions to exclude Google's updated U.S. revenue numbers, which amounted arguing that "It's Google's own fault if it gave us overstated revenue numbers, so we should be allowed to base our damages on that larger number, even if it is incorrect."

Based on today's order on the motion for sanctions, it appears that the Court would rightly prefer to have a correct damage number based on actual U.S. revenues. Therefore, the Court today ordered Google to supply all the U.S. revenue numbers, and is giving Dr. Becker the chance to recalculate Vringo's royalty claim based on those numbers. After all, from the Court's perspective, why use wrong numbers if as Vringo argues, the correction is simply "an issue of mathematics."

What Does This Mean In The Case?

1. Vringo's Damage Claim Will Be Reduced. This seems pretty clear. If Dr. Becker applies his royalty calculation to a smaller pie (US revenues), the result will be smaller. I cannot glean the magnitude of the reduction from any of the pleadings.

2. The Resulting Damage Claim Will Have Greater Reliability. Although it appears the damage claim will be adjusted downward, this is not the worst thing for Vringo. Vringo has the burden of proving the amount of its infringement damages with "reasonable certainty." It's hard to argue "reasonable certainty" as to damages when the numbers your calculations are based on are arguably wrong. If I'm a Vringo bettor (and I am), I'd rather go to the jury with a reliable number than a larger one.

What Are We Still Waiting For?

The Court's decisions on Vringo's motion to strike Dr. Ugone (Google's damages expert), and Google's motions to strike Dr. Becker (Vringo's damages expert) and Dr. Frieder (Vringo's liability expert) are still out there. Most likely, all the experts will be allowed to testify, but this needs to be confirmed by the Court. If an expert gets stricken or his testimony gets limited, that will be significant news.

Tomorrow is Wednesday. Google has to supply its updated U.S. revenues to Vringo by Thursday. Vringo's updated damages report is due on Saturday. Trial starts the following Tuesday, October 16. This doesn't leave a lot of time for settlement negotiations, does it?

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.