When Judge Jackson dropped the hammer on Vringo (VRNG) and limited their potential damages to when they filed suit in 2011, as opposed to in 2005, the stock crashed. And that makes complete sense. Losing six years of damages will mathematically lower any payment that Vringo would receive from Google (GOOG). And regardless of the effect of the allegedly egregious typo committed against Vringo by PilotOnline (claiming they can receive $500,000 instead of $500 million), the stock did warrant a drop after the ruling.
Looking past the obvious math, think about what Judge Jackson is trying to convey. Before the trial began, Judge Jackson forced the two parties to sit down for settlement talks. Clearly, he didn't want Google's search business model to be sacked by Vringo's legal rights. And because the two sides could not reach a settlement, the trial went through. By all accounts, most of the trial proceedings seemed to be going Vringo's way (thanks to Steve Kim for his informative updates).
Because Vringo seemed to be maintaing the surprising upper hand throughout the trial, Judge Jackson's damages ruling really landed hard and caught many Vringo investors off guard. It left many wondering why he suddenly changed the tide against Vringo, and why he even waited until the second to last day of the trial to announce the damages limitation.
So when the stock plunged, I immediately saw an opportunity. In terms of pure book value, it could be argued that Vringo is worth about a dollar. Many would disagree, and rightfully so. Vringo's patents cannot be measured in pure book value, and without the Google case, they would be fairly valued at $3 a share.
But let's get to the catalyst that is Judge Jackson's ruling. When I heard about the ruling and witnessed Vringo's subsequent crash, I knew one thing: Judge Jackson knows Vringo has had the upper hand with the proceedings and with the jury, and he felt a responsibility to limit Vringo's damages, probably in an effort to set a tone for future patent settlements. Which seems fair enough. Jackson was essentially announcing to companies not to fear a lawsuit drudged up out of the blue in efforts to collect 15 years of royalties and interest. Jackson is letting Vringo collect their windfall, assuming they win the case, but also attempting to control the chaos in the patent world should Vringo win.
Side note: A soundbite from Vringo's closing argument delivered by Jeffery Sherwood really sums up the sentiment of the case for me. Sherwood asked why Google brought up their impressive history of giving money to charities -- during a patent trial case. Talk about transparent reach. Exploiting charitable donations to paint a pretty picture? No juror would fall for that, at least not in a patent case, and Sherwood made sure of that.
So even with the damages limitation, I'm even more bullish than I was before. While I don't agree with the timing of the ruling, it seemed as if Jackson saw enough in Vringo's favor to realize that the important and global precedent that would be set with a Vringo victory needs to be reigned in just a bit.
Disclosure: I am long VRNG.