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Vringo : A Diamond In The Rough - Short Term Speculation

|Includes:FORM Holdings Corp. (FH)

Since the beginning of the year, Vringo, Inc. (VRNG), a company engaged in the innovation, development and monetization of intellectual property, has reached some rather impressive and unexpected milestones.

Thus far, since January 1st 2014 Vringo has completed the following:

  • On January 28, 2014, and April 28th, 2014, Vringo reached a confidential agreement with ADT Corporation and TYCO respectively. The agreement resolves litigation that was pending in the United States District Court for the Southern District of Florida. While the agreement is confidential it is estimated base on ADT and TYCO's revenues that this could amount to 2-4 Million per month. If this is the case Vringo is now cash flow positive!

    Prior to 2011 TYCO and ADT were 1 company. Both TYCO and ADT have a combined 20 million monitored sites which likely infringe on Vringo's technology. Using a similar estimate that this technology is used within 20% of retail monitored sites it can be surmised that the infringement could cover up to 4 million sites. Best analysis suggests that the "on-going royalty" could be as high as $1 per site per month. Disregarding past infringement, Vringo could gross as much as $48 million per year, between both settlements. Once again, I feel the need to reiterate this because of these events Vringo could very well be profitable.

  • On February 18, 2014, Vringo finalized a deal with Infomedia Services. Under the terms of the deal Vringo was able to sell many of its older and unused assets for a 8.25% stake in Infomedia Services. However, more importantly Vringo was given "the opportunity to license certain intellectual property assets and support Infomedia to identify and protect new intellectual property. Additionally, Vringo's CEO was appointed as a full voting member on Infomedia's board of directors. has which is on an impressive growth path." Considering the synergy between these companies and InfoMedia Services technology I would be willing to bet Vringo will file additional suites to monetize the hundreds of infomedia patents.
  • As of February 21, 2014, Vringo has lowed it monthly cash burn by at least 14%, from $2 Million / Month to roughly $1,750,000. This does not include the possible revenue from settlements and is calculated using Q4 Financials and theProxy Statement. Using this burn rate and the cash on hand the cash balance is sufficient for Vringo to operate through 2014 and 2015, conservatively without budgeting for a significant revenue event.
  • Throughout the new year, Vringo has been keeping the pressure on ZTE and Indiamart in numerous jurisdictions. Thus far Vringo has done a great job enforcing the patents they received from Nokia (NYSE:NOK). The suites against Indiamart has resulted in two injunctions and outside of any settlement the India case is scheduled to go before a non-binding arbitration panel on May 16th. Of further interest is the fact that Vringo and ZTE corporation reached a mutual agreement to postpone litigation, presumably to work out a possible settlement. Similarly, must appear in front of a court on May 6th for violation of numerous court orders. I believe Vringo has enormous leverage in negotiations at this point considering that under the India Contempt of Court Act, 1971 company executives, directors, and officers may be physically jailed for contempt.

However, now that the cases against ADT, TYCO, and MSFT are out of the way and considering the very real possibility of an imminent ZTE settlement it is time to return our focus on to the Google case.

Since 2012 to the end of 2013 Vringo has received enormous publicity with regards to its enormously lucrative case against Google (NASDAQ:GOOG). Thus far Vringo has been awarded nearly $1 billion dollars against the defendants and is likely to recover a significant portion of the damages awarded. Seeking Alpha contributor Justice Giles delineates the possible outcomes within his article, "Are You Capitalizing On This Big Opportunity". The article by Justin Giles does a brilliant job of outlining various outcomes based on appellate rulings. And while certain specific are yet to be ruled on I am of the same mindset that Google would have to shell out anywhere from $1.5B-$2B over the long run.

With appeal arguments scheduled for May 6th, 2014 it is time to look at what is going on, what material events may occur, and what are the possible effects on share price.

During this appeal Google is arguing infringement, patent validity, claim construction, and everything that went against them during Pre-trial. Vringo is expected to defend against Google's appeals as well as cross-appeal issues on laches and past damages. While many people have quite diligently researched the timeframes for a formal CAFC order in the range of 30-180 days I do believe that the oral arguments as well as questions from the judges will shed invaluable light on the mindsets and opinions of the tenured justices.

If history has proven anything it is that these court proceeding can be very volatile. Throughout the last two years simple court proceedings and even words from Judge Jackson has caused Vringo stock to swing up and down almost 50%. Considering the enormous amount of cash at stake, equal to roughly 5 times Vringo's current market capitalization, any positive hint from the justices will likely cause this stock to soar. While it is unlikely, suppose Vringo only gets $500M, this would cause the stock, one a strict enterprise valuation basis, to almost double.


With a market cap just over $350M even if Vringo was to bat 0.100 they would still have of hundreds of million of dollars on the way, and there story seams to just keep getting better. In terms of opportunity costs, investing into could very well be one of the most profitable investment for years to come.

Disclosure: I am long VRNG.

Stocks: FH