This isn't a quick blurb on the fundamentals of the case, at least not EPS, PPS (per'se) or what their future revenue model is. This is a friendly wake up message to a lot of people that don't think very dynamically - but rather, one dimensionally. If you're looking for links to motions, court transcripts or fun graphs, you're looking in the wrong spot because they've been posted so many times, I don't feel like beating a dead horse.
Some have questioned my motives and why I don't argue both sides of the coin. I do and I have, multiple times. Since there isn't some way to aggregate all that info and since many missed a lot of it - I figured I'd give my thoughts on what is going on. To get it out of the way, yes, there is a way the stock price never goes up, that we stay in the 3/4 range, but so many things would have to go wrong, so many impossible things, that to me - it's a non issue and statistically impossible.
Throughout this entire case, the one thing that worried me the most, the one time that I actually consulted my wife to get her input, was increasing my position prior to the end of the case... before the verdict was read. I knew a bad investment, IE: a loss in court, would cost us half that investment at least. My decision to increase was partially due to a handful of comments from court room sources and what the consesus was on a few of the stock forums. That, coupled with some PACER documents, I felt confident at that point that Vringo would end up with a win and it was worth it to me to increase my position. I figured at the very least, I'd see $1.50 after a loss and would lose about half my investment. I've lost more than that on dumb trades so I figured, 'what the hell'. I'm married without kids and no debt - I have friends who gamble more than what I was betting on Vringo in one evening. I know what most would say, 'trading off other peoples opinions is dumb'. I do have background in law that exceeds any layperson and understand civil trial procedures better than anyone that isn't a lawyer - so I wouldn't say it remotely it was due to others. In essence however, I would say a lot of us made decisions to double down off of what we heard was coming out of the court room. Some bought into this stock because of James Altucher and his glowing review. I personally think that had a lot of what I will talk about didn't go wrong, we'd still be sitting in the high single digits, while on appeal watch. At that time, adding to my position, I was nervous. I liquidated a sizable position in Zynga end of October and then again in the beginning of January. That did not pay off yet due to the fact Zynga is trading mid $3s and I sold at pretty much the all time low. No point crying over spilled milk.
I for one didn't actually expect a settlement going into trial. I was hoping for one, but didn't expect it. I knew from seeing numerous other Google IP cases, that they weren't going to lay down, especially with how much of their revenue stream Vringo was going after. I think now, which I'll address in a second, that we are in a much better position to see a settlement than we were before/during trial.
So here I am… end of February, having sat on my position since middle of July (longer than most could say). I could have BTFDs plenty, but I knew, like most who have had bad luck, the second I would sell, we'd get a T1 halt and I'd be stuck chasing the gap. So, like others, I decided to just hold. While doing DD, after my first purchase, I decided that I would hold, wouldn't day trade the stock and would deal with whatever the outcome was. As more and more things have come to fruition - I have decided I'll continue to hold through what I think will be the first pop and then a subsequent retrace 2 to 3 days later. From that point, we'll see some odd swings, but a gradual climb while we get bits of info from what's going on thru the appeal.
So having said all that - I'd like to get to the meat and potatoes… at least in my world.
First and foremost, hardly anything has changed in the last few months since November 6th. Vringo still has a win over Google, they are still in the position they were in then - however much closer to a final verdict being rendered. I think most people thought the jury would find Google 'guilty' and then they'd hand over a check. Wrong. Motions for appeal is inevitable. An actual appeal, is not. What most people fail to realize is that just because you file an appeal, doesn't mean it gets heard.
Past that, Vringo had a secondary that raised enough capital for them to continue their case for at least a year (and that came out of V's own mouth). This cash in the bank will do exactly what they said it would, allow them to put up a fight. Stout and Company are a solid legal team… I don't need to babble on about their victories, but we all know what has come from Don and friends taking on behemoths - and winning. Some people argue that Vringo will go broke and I say to them, 'Google will have to answer to shareholders eventually. They can't keep fighting a losing battle that could ultimately end up costing them billions, instead of just millions'.
I realize that Google has a lot of money and Vringo doesn't, but I wouldn't bite my nose to spite my face 'just because', at least not at this point. Google lost. As more and more information comes available, it would appear not only did they lose, but they played dirty. If this is true and the affidavits signed week or so ago are true - it could be a lot more cash on the table for V than initially hoped for.
For those that really don't understand why the laches motion was granted, you have to understand that Google wanted the court to believe Lang knew about his tech being used and that he took too long to file suit. Ignore all the ownership transfers of the patent and the amount of money it costs to mount a legal battle against Google… Laches essentially says it caused them more damage by him having waited as long as he did to file suit and that it is unfair to Google to have to pay past damages. Specifically, it referenced a blog post from 2005 that indicated, at least, Google would have you believe, that it was common knowledge AdWords ran off of Langs patent. One blog. In 2005. But that's besides the point.
So where does that leave us right now?
Some individuals, including myself, think that once the judge rules on the JMOL and rules on 822… we will be in a much better decision to see what exactly the future looks like. I believe judge denies the JMOL and rules 3.5% running royalty, off a base of 20% or higher. People will say, 'well the jury can't decide the running royalty rate, that's just a suggestion'. I realize that. But that's almost arguing semantics. People will say, 'jury can't decide, so it could be 0%'. That's true, but in typical cases like this, the jury sets the precedent for what's deserved - not the judge. He rules based on case law and based on what the jury decided. Since this wasn't a bench trial, judge isn't the judge, jury and executioner, he's just the judge.
I will say that we could end up with nothing close to 3.5% of 20%. It might be 5% of 10%, or 7% RR off of 2.8%. But, regardless of what you think the Judge has done and how he's erred in Googles favor - you have to admit: He's human. Judges make mistakes. A lot. No judge is perfect. There were thousands of pages of information to keep track of and he's just one guy making split second decisions that obviously cost a lot of people a LOT of money.
Do I think that the judge could rule in favor of Vringo by increasing the royalty rate or increasing the base revenue % that the royalty is based on? Absolutely. I said dozens of times, prior to reading the transcripts, that the laches ruling to me was a way to allow Google to not have one more item to appeal over. Google can file a motion for appeal all day long for this/that - but it doesn't mean it will be granted. The laches motion was one of the biggest things, next to the verdict and next to the royalty rate that he could have ruled on. Sure - it sucks. Sure - it dropped the PPS a lot, but it wasn't the end of the world, not hardly.
Most people forget that Vringo was looking for around $493m total payout from Google. With a 3.5% RR based on 20%+, you are looking at more than that. Potentially, 3-5 times that. What most people don't realize is that Wallstreet has a hard-on for 'monetizing mobile'. Every tech company getting hammered is doing so because they are having a harder time monetizing their revnues than others. Google is included in this since they right now don't have much revenue coming from mobile ads. The next few years could see Googles mobile revenues increasing 10 fold, we just don't know. And please don't tell me 'they have android', since it's open source and free - like most everything else in their stable.
Ok, so Clyde, what is your point with the RR?
I think, personally, that once the final verdict is in, or even before that (but after 822 is ruled on), Google will realize what size of this uphill battle they are fighting and how they would be better suited to settle than to fight it on appeals. Appeals opens up so many unknowns for them and could end up with them paying plenty of past damages and an increased royalty rate on who knows how much growth. I'm not going to do the math since so many have done it already, but Google could be out $2b when it's all said and done if they appealed.
On the flip side. It could end up with the appeals court finding in Googles favor, ruling against Vringo and them getting nothing but the money from previous infringement (or even not that). Also, as a few have said, USPTO reform could cause this to hit a wall. But my retort to that is that, laws like that aren't retroactive. Judge has to rule on the law at the time of the trial, not what changed years after the fact. I personally don't see USPTO being an issue - especially since they dismissed most of the requests from Google for reexam.
So what else is causing the stock to sit stagnant?
Well - there is the 'decimal transposition error'. The handful of half honest, bearish articles written on SeekingAlpha, Motley Fool, various blogs and a few media outlets - all of whom got so many things wrong. I'm not going to pick on anyone individually, but there have been people making comments one day, that completely contradict their comments the following day. I will say that for those in Vringo on the day of the laches decision, the circuit breaker did a piss poor job of halting the stock at the initial 10% drop… since it dropped a helluvalot more than that without tripping it. IMO - had the circuit breaker caught when it was supposed to, people would have had a lot more time to understand what happened and not sell into the panic. The circuit breaker caused 1000s of stops to get hit, which just cascaded and cascaded and continued to see the PPS drop. We will never know, but I'd venture to say that 80% of the sell orders that day that weren't MM super computers, but people who had sell orders 'just in case'. People that didn't even know what laches was.
Every bear raid that we've seen so far was based on informational half truths, conjecture and stops being hit after an article was written that didn't give the whole picture. In my opinion, I think we'd be trading in the high 4s, low 5s easy - because, again, in MY opinion, all the selling wasn't based on anything relevant to the verdict, royalty rate or base. It was based on words used to influence the stock - plain and simple.
In closing, I'll ask, again, like I have numerous times… besides the added amount of time that some have had to hold, what has changed? What material event has happened that caused some to question the reason they bought or decided that it was time to jump ship? Most would say 'opportunity cost of not being in other stocks'. I say, 'sure, valid point', but you can't know unequivocally that you would have bought one stock over another, you can only assume. The internet is full of people who want to 'belong'. You get a few individuals that start screaming bloody murder and, as convergence theory states… most of the rest of the group will join in. No one likes being bullied. No one likes being told their idea isn't good - so when it comes time to side with the most vocal, or the ones like me that wait months to write an article like this…
…it's a no brainer where 'loyalties' will lie. I think if more people stepped away from their computer, stopped arguing, stopped giving their opinions 10 times a day - we'd see a chance in momentum. Again. Just my opinion.
Am I upset I have to wait this long? No. Am I tired of waiting? Absolutely. Do I think the end will justify the means and I will see my initial investment pay off? Do I know that the ruling on 822 and final verdict get closer every day and wont take years to work out?
I am long. Initiated a position middle of the summer of last year and have added a few times over the course of the last 8 months. I wrote this article myself and they are my own thoughts. I am not a financial advisor, licensed stock broker or attorney - so take my opinions with grains of salt. This is my first instablog, so if I'm missing something or had something posted incorrectly - just let me know. I'll address it as soon as I can.
Disclosure: I am long VRNG.