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Will Vringo Benefit From Apple's Patent Victory Over Samsung?

|Includes:FORM Holdings Corp. (FH)

You may know about the legal battle between Apple (NASDAQ:AAPL) and Samsung regarding patent infringement and last week's decision favoring Apple. Like so many others you're wondering, "How will this affect the ongoing patent battle between Vringo (VRNG) and Google (NASDAQ:GOOG)?" First let's take a look at the facts.

On April 1st, 2012 James Altucher wrote an article detailing his relationship with Ken Lang and explaining why he feels Vringo will win in an until then little known dispute over search patents related to Google's Adwords and Adsense products. Altucher highlights Vringo's (patented) search process as well as Google's process and makes a very compelling case that Ken Lang owns a patent that Google is violating. From Altucher's original article:

Overture, another search engine company that no longer exists (Yahoo bought it) files a patent for a bidding system for ads on a search engine. The patent office says (I'm paraphrasing), "you can file patents on A, B, and C. But not D, E, and F. Because Ken Lang from Lycos filed those patents already."

Overture/Yahoo goes on to successfully sue Google based on the patents they did win. Google settled right before they went public but long before they achieved the bulk of their revenues.

Lycos goes on to being a barely breathing, comatose patient. Fast forward to 2011. Ken Lang buys his patents back from Lycos for almost nothing. He starts a company: I/P Engine.

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Altucher argues that Google knew about the patents and thus is guilty of willful infringement, which garners a larger settlement amount (3x as much). Furthermore, this infringement has led to 97% of Google's 67 billion in profits since 2001.

On April 16th, 2012 it was widely reported that Mark Cuban bought a 7.4% stake in Vringo. Cuban has been quoted as saying he made this large investment as a hedge against the increasing exposure his other investments have due to patent litigation. Cuban hates what he calls "Patent Trolls" and is quite vocal in his disdain for the practice. His wallet is clearly willing to go where the money is at regardless of his philosophical beliefs so he bought up a ton of shares. Many people follow.

June, 2012 Vringo wins on the majority of terms in the Markman hearing. These hearings are used to essentially define the language used in the case, thus extraordinarily important since it's the language of the patents that decides the suit. Score for Vringo. Later in the month Vringo is added to the Russell Microcap Index.

July, 2012 Vringo completes it's merger with Innovate/Protect, Inc. (Ken Lang's company). This essentially turns Vringo into a full blown patent troll. Lang and Donald Stout (Director and Chairman of Vringo's Intellectual Property Committee) are officially teamed up. Stout is what I like to call a "patent piranha". In late July, Stout's company NTP Inc. won a huge patent suit and if you read about NTP and Donald Stout, you'll see the significance of his teaming up with Ken Lang and his patents.

August, 2012 Vringo starts the month ringing the bell at the NYSE. CEO Andrew Perlman flat out explains that they are going after patents and patent litigation. You don't hear a thing about ringtones in the interview for a reason. A few days later we learn that a shelf raised 31 million, issuing nearly 10 million shares at $3.25 to 3 separate investors. The capital is used to buy 500 patents from Nokia (NYSE:NOK). It now appears Vringo is not messing around here and the details of the deal turn out to look more like Nokia is allowing Vringo to be the attack dogs in the patent arena. That was interesting but the next part was even more interesting.

Within days it is announced that Nokia is partnering with Sony (NYSE:SNE) and Samsung in an alliance. Because Nokia gets 35% of the revenues generated by the patents they sold Vringo above the 22 million mark,it's even more clear that Vringo is going to be a pure patent attack company. Heck, Nokia just essentially hired them to do the dirty work. Look at the details of the deal between Vringo and Nokia and you can see it plain as day. Vringo also "aquired" Nokia's (now former) Senior Litigation Counsel, a fellow named David Cohen.

Now Vringo has Ken Lang, Donald Stout and David Cohen (as well as a number of additional all-stars in the patent arena) all working together. That's just insane by itself but with ongoing litigation and continued patent acquisitions the writing is on the wall.

Things look pretty good for Vringo vs Google but let's weigh in on some of the contrarian points I have seen brought up in recent months.

The one that cracks me up personally is the "If Google was worried they would have already bought Vringo out". I speculate that buying Vringo has certainly been discussed in the Google boardrooms but I look at this like when I was courting my wife many years ago. Her mother said, "If he were going to marry you he would have proposed already." Like I wasn't getting a prenuptial agreement first? As if there were no details to handle? The argument that Google would have already bought Vringo is a joke. It isn't time yet and certainly doesn't mean it won't happen at some point. Quite possibly will be the end result but I can't speculate on that any more than I could tell my mother-in-law why I wanted to wait to get married. It just wasn't time is all.

Another argument, more recently seen, is the business of Google attempting to get additional art added through a series of motions that were made public last week. You can track all of the Docs and Filings in the case yourself but it's typical legal mumbo jumbo. Motion, countermotion. Objection to this that and the other. Read the documents and you can determine for yourself if Google's latest motion has merit or if it's more a tactical move. I personally don't see any of the 219 motions + text admissions that gives Google any better of a chance today than they did after the Markman hearing results were announced. Motion #217 is nothing more than an effort by Google to get Vringo's Motion #200 denied. From what I read it won't matter anyway because Vringo's patents pre-date the art Google is trying to get admitted.

I fully expect Vringo to catch some positive momentum until more resolution occurs here. On the winds of the Apple and Samsung verdict, Vringo should certainly move up here.

Disclosure: I am long VRNG.

Additional disclosure: While I am currently long Vringo, I expect to sell the position and switch to a short sometime in the next 30-60 days. I'm a swing trader

Stocks: FH