Seeking Alpha
Recommended for you:
Profile| Send Message|
( followers)  

After I wrote my last article on previous NPE litigation and associated payouts, a reader sent me a message:

Ed - thanks for such a great and thorough article. Can you tell me when the actual day is expected that the stock will show its full impact from the upcoming verdict?

What he wants to know is something that will interest every investor: suppose we get a verdict today, Tuesday, how long will it take for it to have an effect on Vringo (NASDAQ:VRNG) stock? Assuming a win (with the latest rounds of jury questions re damage calculations and such, this is almost beyond dispute now that at least some of the plaintiff's claims will be acknowledged), when does the stock go up?

Important question. At that time, I shirked from a direct answer because I didn't want the responsibility. So here's what I told him:

Best way to understand that is to take some data from my list of NPEs, go to the links where details of the story are given, see what date(s) the verdict(s) came out, then check out the related stock charts on Google Finance to see how long it took for the verdict to produce a noticeable effect.

I mean, I could give you an approximate date, but if you want to be really thorough, that's how I would do it. And no one else can do it for you because noticing a spike in a chart as a result of a particular news is a subjective observation.

However, now that I think about it, I can do a study just as I outlined here. I can see how the other stocks were affected by those verdicts. I can do that with this full disclosure: I am just providing data; no interpretation. Please base your investment decisions on your own research. With that caveat, let me begin.

The problem, from an author's point of view, becomes simpler when we note that of the list of plaintiff NPEs provided there, only two appear to be public companies. These are Interdigital (NASDAQ:IDCC) and VirnetX (NYSEMKT:VHC). Interdigital sued both Samsung (OTC:SSNLF) and Nokia (NYSE:NOK) for patent infringement related to 2G Cellular technology and received between $400-$500 million from Samsung and $235 million from Nokia in settlements (other suits against Nokia are ongoing). Virnetx sued Microsoft for infringing on VirnetX's Secure Domain Name Initiative technology and received $200 million in licensing fees after arriving at a jury awarded damage of $110 million.

Here are the dates for these events, as far as I could determine:

Interdigital

Date/DefendantAmount/Story
Nokia - Apr 27, 2006$235 million
Nokia - Aug 1, 2012Federal appeals court revives a patent infringement complaint filed by InterDigital Inc against Nokia on July 26, 2011, that was dismissed by ITC, stock surges 14%.
Samsung - November 24, 2008$400-500 million until 2012

Virnetx

Date/DefendantAmount/Story
Microsoft - March 16, 2010Jury from U.S. District Court for the Eastern District of Texas awarded VirnetX $105.8 million for Microsoft's willful infringement of VirnetX's patents. Stock reached multi-year high.
Microsoft - May 26, 2010VirnetX filed a new motion against Microsoft on March 17, alleging infringement of the patents in Windows 7 and Windows Server 2008 R2 products. Microsoft settled for $200 million.

So, that is the data we have to work with; we already note that IDCC surged 14% on news of a patent suit revival by the US Appeals Court this August, and VHC reached a multi-year high on news of jury award. Let us now look at the charts and see what happened.

(click to enlarge)

IDCC ALL-YEAR CHART: GOOGLE FINANCE

As you can see in the image above and zoomed in below, around April 27, 2007, starting from a few days before the verdict, there was a sharp increase in IDCC stock price. This increase started on April 21, then on May 19 it started really going up, and on October 27 it reached its period high as seen in the image below. It jumped from $18 to $36 between January and October.

(click to enlarge)

IDCC 2006-2007 CHART: GOOGLE FINANCE

As for the Samsung deal, the chart below speaks for itself:

(click to enlarge)

IDCC 2008-2009 CHART: GOOGLE FINANCE

On Nov 21, 2008, 3 days before the settlement, the stock was sitting at the low end of a cusp, and by February 6, 2009, 2 months after the settlement, the stock reached its period high.

Two more interesting points about IDCC stock:

  • That huge spike to $80 from $20 that you see in late 1999 might have been the result of IDCC's winning $30 million in settlement from Erickson late that year; the immediate news was the USPTO validating IDCC patents.
  • That second spike around Nov, 2010 was probably triggered by IDCC earnings report. It would be interesting to do some more research on that.

As for VHC, here's the chart:

(click to enlarge)

VHC ALL-YEAR CHART: GOOGLE FINANCE

The stock really started going up from around August 27, 3 months after the settlement news. However, it did make moderate gains within days of the settlement news, and even around the time of the jury award, as I mentioned before, there was a surge.

Now here's the all-time chart of VRNG:

(click to enlarge)

VRNG ALL-YEAR CHART: GOOGLE FINANCE

Lets first agree that any study like this is going to be incomplete; there will be many factors I will not be able to consider, either because I am not aware of them, or because I can only spend so much time on this article. Now, with that in mind, note that unlike VHC and IDCC, VRNG is a relatively new company in the public domain. I think - and this is a guess with all associated caveats mentioned before - what we are seeing in Vringo's stock price right now is what we saw in both IDCC and VHC's price before the conclusion of a case. The stock goes up and down depending on the progress of the case, and just when the general public makes a decision on an outcome, the stock surges, usually a couple days before the verdict/settlement. If all that is true, and if Vringo wins today, that is the key takeaway from my effort of the last three hours writing this article.

Source: Vringo: Calculating The Verdict's Impact On The Stock