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I am part of a small investment group that combines significant business experience in product marketing and communications with legal analysis and interpretation. My partners and I combine for over 50 years of experience in these fields.
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  • Vringo: Keeping An Eye On The Real Value Here 16 comments
    Nov 19, 2012 9:04 AM | about stocks: VRNG, GOOG

    There have been many articles speculating on the proper valuation for Vringo, Obviousness, The USPTO and so on. Everyone has a slant and is able to express it which makes this a pretty cool country to live in! I hope to inject just a bit of my own reality into the discussion and at the same time point to what I believe is the real value here, the Vringo litigation team.

    A lot of people are talking about what Judge Jackson can do. One thing he can do is bifurcate his decision. He can make a final ruling on the jury verdict where he also sets a timetable to rule on a future royalty number. If, as I continue to claim, the Jury did something arbitrary in their calculations JJ can fix that with "NO" notice. Check out rule 60 under the rules of civil procedure. Vringo has made a clever move to have the court "value" the damages for the period from October 1-jury verdict. It will look awfully funny if the judge does what he considers to be the proper math based upon the expert testimony submitted at trial and it looks nothing like the jury's past damages number. I think the comments by the company regarding a decision from the court in a matter of weeks to months was made out of an abundance of caution and meant to end the incessant speculation and likely the constant phone and email queries to their office on the subject. I still find it curious that we have seen nothing from the Court or Google since the verdict.

    As for company valuation, multiples and the like I have had this argument with some people who I consider to be pros (I am not and do not hold myself out as such) and some of those people argue for no award multiples as those awards have a finite end other words investors can't count on anything presumably after 2016. They go on to argue that Vringo will just burn money on other patents thus constantly being exposed to the risks inherent in operating that way. What if they pay too much for a patent portfolio? Here is where I think one has to look beyond the numbers just a bit. If VRNG is going to pursue litigation against numerous companies on the current IP, many of these companies will choose to pay some level of past damages and sign a license agreement rather than fight the guys who just beat Google. Oh, and the laches ruling by Judge Jackson doesn't apply to new defendants. I sat in the court and heard Judge Jackson when he said one of his principal reasons for finding laches was the close realationship between Lycos and Google at the time Vringo claimed initial infringement. In other words he said that Lycos should have known then that Google was infringing. Again, that will not be true of future defendants. Therefore the argument that Google was the big prize for Vringo is not so robust unless the laches ruling is overturned on appeal. It may still be Vringo's largest award if the future damages amount to roughly $173M per year for four years but it would have been quite a bit more with those six years back.

    The USPTO re-exam is a bit of a Red Herring in my opinion. Remember that there is no review of the 664 Patent by the USPTO and all of the claims in the 664 patent were found to have been infringed by Google et al. I don't see the USPTO process slowing things down here. All it takes, all it has ever taken, was for one claim in one patent to have been infringed for a finding of infringement. Many were curious as to why Google did not request a re-exam of the 664 patent as well as the 420. Now we know that that would have been a good idea. Keep in mind that the USPTO may invalidate a claim(s) in the 420 patent and not invalidate the patent. Then there is the question of Judge Jackson finding the patents obious. Judge Jackson was the one who wanted to hear from the jury on the question of validity before making his ruling. Keep in mind that a decision by him now to find the patents obvious would be an extraordinary one. He would have to find, based upon the weight of the evidence and after sitting in his courtroom and hearing arguments and seeing hundreds of pages of documentation and listening to experts, that the jury got it wrong. The attorneys I have spoken with put that in the realm of a long shot.

    So what about the question of how to value this company going forward? No one knows quite how much money they stand to win from litigation and licensing in the future. We have seen one source conservatively value the Nokia Patent portfolio at $122M. Vringo could get that from ZTE alone folks. I think investors to a certain extent will buy Vringo on their own considered theory of what comes next. At some point technical science meets common sense. I witnessed what I and others would consider to be among the best litigation teams in the United States and that must be factored into investors decision making. It certainly factors in mine and it sure seemed to with many larger scale investors and I'm pretty sure that is why Vringo doesn't use other people's valuation standards. If you are among the best you do not get judged on the mean. So it isn't necessarily a question of what fair or rational multiple will be applied as this isn't your everday business. A saavy investor will examine the cases and make their own assessment of what the infringing element(s) might be worth and put a bottom line percentage on a potential past damages number and future royalties. Then one has to factor what a lump sum payment might look like. I look for somewhere close to a three multiple right now based upon what I think happens now and in the future. That is based upon my own methodolgy which considers multiple factors. It is my belief that this company will montize their patents as well as anyone else in this line of work. And no I don't have blinders on and I have factored that Vringo doesn't win every case.

    I still think there will be a settlement with Google and I think it will be before Christmas. I thought, mistakenly, that we would have seen one by now. If there is no progress on that front in the next days and weeks I believe JJ will come out with a final ruling which will be the first shot across the bow. In that ruling I think he will telegraph where he is going with future royalties if those royalties are not announced as part of that ruling. At that point one party will be more disadvantaged then they are now and I'm guessing based upon quite a bit of research that that party will be Google. So it would seem that the best time to settle and avoid the future unknowns is now. And for those looking for reasons for Vringo to settle they include the long shot obviousness threat and the long, slow path of appeals. I'm sure they would like their money (at a discount) now. I don't know what the magic number is and I don't think anyone does. I'm not sure I buy that everything was set up around $300M because back when the lock up agreements were made we were talking well north of that number in past damages. I rank that argument in the realm of what is convenient now that we are able to look back. I will just say that I hope we are talking about at least that figure. One has to account for taxes and fees and $300M would become less than $200M pretty quickly.

    With options expiration this past Friday and with many of what I would consider to be weaker longs out of the stock I look for this to go higher over the next days and weeks. I think smart money will continue to buy the company now and over the near-term as there are simply too many positive catalysts coming. In addition to hearing back from ZTE in January I think there will be at least two new suits announced by VRNG before then. It doesn't make sense to wait for the catalysts to buy this stock because most of these folks and many on this forum have rightfully surmised that the stock is currently trading at what should rightfully be close to a bottom.

    Disclosure: I am long VRNG.

    Themes: IP, Patent Litigation Stocks: VRNG, GOOG
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Comments (16)
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  • Edva - I've enjoyed reading your blogs and posts in the YMBs . I hope to see along with you a settlement so that this Roller-coaster of a Ride can be over and let the next one(ZTE) begin. I hope im wrong when I say this but I just don't see a settlement being reached and this playing out for the long haul. Presumably the Parties could have hammered this out when JJ ordered them to his chambers before the trial, during the trial, after Laches, even after trial. For whatever reasons the Judge and the lawyers know, they have both respectively agreed to disagree on a settlement. With the USPTO exam Nov 25th and the motions to follow this may drag on for some time. If there's more appeals by either party, this may carry forward till 2015. I hope im wrong, but I continue to look forward to your posts and blogs.
    19 Nov 2012, 06:06 PM Reply Like
  • I'd be interested to hear what your synopsis is on the goolge motion filed yesterday. Steve Kim doesn't believe this smells completely like a settlement is brewing, rather simple posturing and professional courtesy? "hopelessly hopeful" is the phrase he used....what say you?
    20 Nov 2012, 08:13 AM Reply Like
  • Author’s reply » Thanks Asia...I'll attempt to answer your question as well as Stewarts. First, the November 25th date is simply a response to the USPTO re-exam action on 420. This is Vringo's opportunity to tell its side of the story regarding the 420 patent and it is a good story. We are a couple of years away from the USPTO making a ruling on the patent's validity and until then the 420 enjoys the presumption of validity. Please remember the 664 patent was infringed upon as well and there is no action on that patent.


    As for a settlement I have been thinking all along that the two sides would settle. I thought for sure (and said as much) the weekend after Dr. Ungar's testimony Google would have surmised that things were not going well and would have attempted to broker a deal. Maybe they tried and the sides were just too far apart on their respective numbers. The subsequent Laches ruling changed the entire complexion of the case and therefore the settlement strategy for both sides. Google was able to say...hey, we just blew out six possible years of damages so even if we lose it isn't going to be nearly as bad as it would have been. At the same time Vringo had to reassess. If they ran the tables and got a win and 3.5% future royalties they were now talking around $850M all in, best case scenario. I fully realize that JJ could rule for a future royalty number greater than 3.5% so the math could change a little.


    We are in the somewhat unenviable position of needing the Court to correct what I think is a past damages mistake and rule affirmatively for a 3.5% royalty number. On the other side Google faces the prospect of the correction and the possibility of JJ giving greater than a 3.5% royalty. I would bet that there has been at least one meeting in Judge Jackson's chambers where he has again asked them to try to work something out and where he also may have telegraphed some of his upcoming moves (that is what good judge's do). Since there was no ruling or formal date set for anything it would not be necessary that that be made public on Pacer or Justia.


    When we reached a week post verdict with no word from the Court or Google (on anything) I began to think that was curious. Like Steve Kim I don't want to read too much into what seems to be a defrosting of the Google/Vringo relationship given yesterday's docket filing, but I continue to believe a settlement makes the most sense. At the same time it is Thanksgiving week so there could just be some professional courtesy being extended after what has been a long battle. Happy Thanksgiving.
    20 Nov 2012, 10:52 AM Reply Like
  • Hi EDVA


    I agree with your total award estimate of 850M
    but JJ ruling for a future royalty number greater than 3.5%
    could change that into 1.1-1.4B


    Indemnity clause => GOOG is responsible for all customers damages. After final ruling, VRNG could go after 1000's larger Google customers.
    How much is that worth ?


    Total award could easily be 2-3 Billions


    That's why I think there's a good chance of 1B+ settlement
    20 Nov 2012, 04:54 PM Reply Like
  • Author’s reply » I agree that it could be more if JJ ups the royalty number. I remain convinced that we will likely see a settlement rather than an award but that may just be my insistence on an event that is rational.
    21 Nov 2012, 05:59 AM Reply Like
  • Thanks edva,


    As always, appreciate the feedback.


    Happy Thanksgiving to you and yours'!
    20 Nov 2012, 01:35 PM Reply Like
  • What effect will this news have on the stock and it's future? It's in todays early news:


    "The Department of Justice and the FTC plan to hold informal hearings next month on whether patent trolls, which license IP but don't sell any tangible products, do more harm than good."


    Doesn't sound good for VRNG
    21 Nov 2012, 08:26 AM Reply Like
  • monumentalgains
    that was 2 days ago


    and VRNG sells tones too
    21 Nov 2012, 08:38 AM Reply Like
  • Also consider that Lang is the inventor and the jury has upheld the patent validity. the classic patent troll problem is with non-owners, non-practicing companies filing bogus claims. Vringo doesn't fit the bill at all.
    28 Nov 2012, 11:17 AM Reply Like
  • really?.....I'm a bull but it's hard to be bullish on their ringtone business
    21 Nov 2012, 08:42 AM Reply Like
  • tones business just avoids the patent troll classification


    if you want to stay short, that's fine with me


    I am long
    21 Nov 2012, 08:44 AM Reply Like
  • I'm long, and would like to see a SP increase, soon....and a verdict on future % from JJ
    21 Nov 2012, 09:14 AM Reply Like
  • then relax and just wait for the huge settlement
    21 Nov 2012, 09:16 AM Reply Like
  • thanks man, will do
    21 Nov 2012, 09:39 AM Reply Like
  • EDVA,


    You refer to "hearing back from ZTE in Januray". Are you referring to the commencement of the UK trial? Would you have any sources or references that could provide more details on the tentative timing of the ZTE (UK) case?


    As always, much thanks for all you have done.


    (ps: You may already be aware, but stevekimlaw has setup a vringo forum that is actively moderated to keep the conversations focused on legitimate VRNG issues and they go a good job of keeping out a lot of the riff-raff that have overrun YMB where I initially found you. I know that your contributions to that board would really add to the dialogue! it is at:
    27 Nov 2012, 02:58 AM Reply Like
  • wonderful insights EDVA! Also note that the USPTO ruling will have NO EFFECT on Google suite because the jury had to find just one count where there was infringement and they found many.
    28 Nov 2012, 11:19 AM Reply Like
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