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EDVA
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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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  • VRNG: A Major Victory Has Been Won (REALLY) 31 comments
    Nov 28, 2012 11:16 AM | about stocks: VRNG

    Like many people who have observed this case I have been left wondering how the law, as applied, can be so nebulous. We are three weeks removed from a jury verdict in which the Plaintiff in this case, Vringo, won convincingly. Like most such cases there have been many twists and turns along the way: The Markman Hearing and Ruling, Summary Judgment, Laches, The Verdict and more. All that is pretty understandable since a trial, much like a football game, comes with a combination of scores, penalties and turnovers. The big gripe in this case is that unlike a football game, even after the verdict and judgment few people seem to know the score.

    Fast forward to today, Wednesday, November 28, 2012. Here is where we are (I am basing this in part on several discussions with patent attorneys (which I am not) who themselves have viewed the judgment. This is what I got out of those conversations. Note: I make no representation for anyone to trade on this information I simply share it and expect that people will do their own due diligence and proceed with whatever decisions they think best for them.

    On November 20th Judge Jackson issued what was in fact his final ruling. Notice that the ruling said "Judgment in a Civil Case." Those who have speculated that only one box was checked on this form need to understand that this box was checked because it was a jury trial. The other box was not appropriate to check because the action did not come for "determination before the court" it came for "a trial by jury." docs.justia.com/cases/federal/district-courts/virginia/vaedce/2:2011cv00512/271949/801/0.pdf

    The future royalty rate is 3.5%. I have been assured that this is in fact the case. This is the rate the Judge has ordered going forward and more than that he telegraphed in court (right in front of me) that this was the rate he was likely to use. The attorney I spoke with said the Judge, by entering his judgment, has started the clock running on post trial motions, clarifications and the like. At this point we can expect to see a flurry of post judgment motions filed in the very near future if there is no settlement. It is interesting that Vringo did not wait for the Judge's final ruling to file their motion for interest and supplemental damages-it could be that they thought that the judge might be prompted by this motion to clarify the apparent past damages calculation error when he issued his judgment. He did not take the opportunity to do so but he may entertain a corrective motion in the near future. In plain English he may not have wanted to make a correction without specifically being asked to do so.

    What Vringo is likely to do now. Vringo is likely to ask the Judge to clarify his ruling with respect to damages in the absence of a very near-term settlement. He has already been asked for clarification on the one month of supplemental damages. I think we are also going to see a request for clarification of the royalty base. While the parties know what royalty base was introduced at trial (Dr. Becker testified to a royalty base of 20% and Google offered no alternative royalty base), and I have been told in no uncertain terms that this is the base that will be used and would be used even in the event of an appeal, it would make sense for the judge to clarify this fact. Vringo can also request to have the past damages corrected. Again, my guess is that if we don't see a settlement between the sides shortly that request will be forthcoming. Judge Jackson will be asked to effectively move the decimal point. Keep in mind too that based on the Court's judgment of November 20, Vringo could legitimately sue all of Google's Search customers right now.

    To summarize these conversations:

    • Vringo has received a running royalty award of 3.5%. Based upon past revenue figures this should be worth approximately $600+M or $150+M X 4 going forward. Since we do not know the actual future revenue numbers this is a conservative guesstimate based on historical revenues. The reality is that the numbers should be well north of this.
    • Vringo has been awarded $30M in past damages
    • I believe that the Judge is likely to award Vringo roughly $11.5M in supplemental damages (based on application of the 3.5% to Dr. Becker's royalty base) in addition to past fees and interest. This is based upon the historical number of the 3rd quarter royalty base which was approximately $1b. Multiply that by 3.5% which gives you $35M and divide by three to get an approximate one month number. It is a bit more than that since supplemental goes from October 1-November 6 but nonetheless it's a lot of greenbacks. I'm pretty certain that Google will argue simplistically that the past damage number for the supplemental month should be $1.32M based upon taking the Jury's past damage number and dividing by 12. The problem with this arithmetic is that there is no factoring by a proper or accurate royalty base and this flies in the face of everything that was presented during trial. While the judge has not corrected any math yet I don't think he is ready to participate in offering up his own miscalculations by turning a blind eye to what was presented at trial and winging it on the supplemental award.

    Stock Value: So given what we know today what would be a fair valuation for Vringo? If you consider the recent 10Q from November 14th we have approximately 112M fully diluted shares. Whether the market recognizes it or not (Google surely does) we have Awards that total $600 + $30 Million (and this could well be changed but I am not using any increases here). We also have roughly $50M in cash. So $680M plus interest and fees. I speculate that after expenses and taxes Vringo would have about $500M in the bank. Now some have argued that Vringo should receive no multiple because no revenue has been secured post 2016. I don't think a rational investor looking at the history of similar companies would draw the same conclusion. I have seen a range of multiples on a handful of these companies in the range of 2.1-to more than 20. Like Dr. Becker did with royalties I would hue toward the lower end and use a multiple of 3X. I have seen one compelling report that places the value of the Nokia Patents at about 6X the purchase price. While we may not know what revenue will be derived post 2016 I suspect the market will arrive at a multiple that takes into account numerous factors and perhaps most of all Vringo's ability to successfully prosecute a case against a company like Google who can afford a battery of attorneys that are the best money can buy. Vringo's team is what is Golden here folks and that is a big part of why the market will make assumptions on revenue going forward on myriad cases. Jeffrey Sherwood who argued for Vringo in Norfolk was one of the finest litigators I have ever seen in court. www.dicksteinshapiro.com/newsevents/pressreleases/detail.aspx

    Therefore, on the basis of what we now know I think we will see a future valuation between $1.5-2 billion for Vringo or a $13-18 share price range.

    I speculate that the reason we have not seen more motions filed at this point is that the parties are trying to come to an agreement. Vringo has been unnervingly silent since November 20 and as I have said above has held their fire. While a judgment has indeed been rendered, Judge Jackson still has jurisdiction to respond to these various post trial motions.

    One other note...at times it has been difficult to quickly publish information. On one message board in particular during the trial I was not able to publish during a critical time for almost an hour. I will begin to post these and other articles on my patent blog which is located at edvapatent.wordpress.com.

    Disclosure: I am long VRNG.

    Additional disclosure: I post this information for general informational use and do not advise that you make trading decisions without consulting with an advisor or doing your own due diligence.

    Themes: GOOG, IP, Litigation, Patents Stocks: VRNG
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Comments (31)
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  • craig thomas
    , contributor
    Comments (42) | Send Message
     
    Thanks for the update. As well as Vringo requesting to have the past damages corrected do you think they will look to appeal the laches ruling?
    28 Nov 2012, 11:42 AM Reply Like
  • Alphi
    , contributor
    Comments (100) | Send Message
     
    ill give you 4 reasons why VRNG won't want to appeal laches.

     

    1) it already has a precedent in case law. To my knowledge the laches ruling was applied by the judge and not sought by GOOG thus making it harder to overturn.

     

    2) the laches ruling only constitutes the first 5 years or so of royalties (which are the lowest) and it is a good deterrent against GOOG appealing.

     

    3) VRNG will want to utilize their all star legal team to extract more money from other firms.. they cant do this while that team is bogged down in appeals.

     

    4) VRNG execs have an option plan tied to the performance of the share price so they will want to keep the price stable and slowly rising.. any uncertainty will cause the share price to lower until it is resolved. Thus VRNG will be motivated to avoid ANY appeals from either side of the fence if they can help it.

     

    Now of course if GOOG are not deterred and do actually appeal (which is likely) then VRNG can make their own appeal and beat GOOG down with an even bigger stick.

     

    for what its worth (and its been said many times before) the royalties going forward are huge. Minimum 150 first year and potentially maxing out at over 400 mil per year by 2016

     

    so its not surprising that VRNG would want to move quietly on to the next target ASAP especially since any delay will cost them more money due to laches.
    28 Nov 2012, 01:10 PM Reply Like
  • Kevin Porter
    , contributor
    Comments (1795) | Send Message
     
    EDVA you are totally WRONG

     

    that was not final judgement

     

    final judgment is after all motions are cleared !
    28 Nov 2012, 11:54 AM Reply Like
  • Alphi
    , contributor
    Comments (100) | Send Message
     
    Kevin you are totally wrong and its time you grew up and accepted it.. EDVA has been closest to this case than almost anyone I know.

     

    you cant cherry pick when it comes to formulating a rational conclusion. following everything EDVA said during the trial and then disagreeing when he actually seeks proper legal advice.

     

    if you didn't notice all motions were cleared and the final judgement was handed down.. the case was terminated and handed over to the next judge for any appeals. all that is now left is for GOOG to file an appeal before Dec 20 or so.
    28 Nov 2012, 12:39 PM Reply Like
  • Kevin Porter
    , contributor
    Comments (1795) | Send Message
     
    LOL incredible the level of disinformation

     

    it will be fun when this gaps up huge

     

    (anyway at least I agree with EDVA on the target, at least $10)
    28 Nov 2012, 12:40 PM Reply Like
  • superdaemon
    , contributor
    Comments (196) | Send Message
     
    Alphi,

     

    This was not the final decision. The Judge affirmed the Jury's verdict. There is no final decision until motions are filed on the 29th and Dec 7th. I'm no legal expert, but this much is certain.
    28 Nov 2012, 02:24 PM Reply Like
  • EDVA
    , contributor
    Comments (117) | Send Message
     
    Author’s reply » Kevin,
    I have been told in no uncertain terms by a highly credible patent litigation attorney that the only rulings left are on post trial motions and that the judge has ruled on the verdict and on the royalty rate going forward. If that turns out to be wrong I will be quite surprised but will stand corrected and say so.
    28 Nov 2012, 03:39 PM Reply Like
  • superdaemon
    , contributor
    Comments (196) | Send Message
     
    EDVA,

     

    While the issue of the running royalties has been addressed, I"m pretty certain the issue of future royalties has not been clarified by the judge. I'm no legal expert, so please don't blow me up here, but I don't think this issue has been addressed by the judge.
    28 Nov 2012, 04:03 PM Reply Like
  • Kevin Porter
    , contributor
    Comments (1795) | Send Message
     
    post trial motions are BEFORE final judgement ..

     

    after final judgement only appeals ..
    29 Nov 2012, 07:03 AM Reply Like
  • Sprockethead
    , contributor
    Comments (12) | Send Message
     
    Thank you! But why would there be a settlement if that was, indeed, the judge's ruling on the 20th? What is left to settle? Can you even settle after court?
    28 Nov 2012, 03:38 PM Reply Like
  • EDVA
    , contributor
    Comments (117) | Send Message
     
    Author’s reply » Yes you can settle after a trial and in fact many cases are settled just that way. VRNG is likely to see the benefit of having a lump sum payment now (and the market should respond favorably as well) rather than potentially going through a long appeals process or getting the payments piecemeal. Googles benefits are many to dispose of this now as well. Obviously depends on what the sides are talking about in terms of settlement numbers.
    28 Nov 2012, 03:46 PM Reply Like
  • EDVA
    , contributor
    Comments (117) | Send Message
     
    Author’s reply » Only if there isn't a settlement and this dissolves into appeals. The basis for an appeal is pretty specious on Google's part however. I don't see Google Management following that course and I can't believe Quinn Emanuel would advise it. If they can't settle they will appeal though. No doubt about it. That will open the Laches issue and the past damages calculation if the judge does not correct (if a motion for correction is put forth by Vringo which I think they do only if they can't settle).
    28 Nov 2012, 03:39 PM Reply Like
  • Jesse San Nicolas™
    , contributor
    Comments (5) | Send Message
     
    EDVA, how can we be 100% certain this is the judges final ruling? I agree that something is brewing between GOOG and VRNG, as now VRNG can sue ALL of GOOG's AdSense customer's as of now.

     

    We also all know what "Judgement in a Civil Case" means, but this docket does not show exact data on how the 3.5% RR is to be calculated, as these type of "details" usually accompany final rulings.

     

    I'm pretty sure that most people, me included, do not believe this to be the "Final Ruling" as it leaves a lot to be desired as to the specific's of how everything is to be calculated going forward. This is especially the case if you look at other civil suits final rulings.

     

    Can you please clarify or elaborate a bit more on this? Thanks
    28 Nov 2012, 03:44 PM Reply Like
  • TexKuch
    , contributor
    Comment (1) | Send Message
     
    Edva,
    I am abandoning the other message boards and blogs concerning VRNG and will follow yours. You have kept us updated since the lawsuit was filed with accurate information . I am long and continue to buy on the drops. Thanks for the info.
    Jim K.
    28 Nov 2012, 04:45 PM Reply Like
  • EDVA
    , contributor
    Comments (117) | Send Message
     
    Author’s reply » Thanks Jim,

     

    There is a considerable amount of disinformation out there and while I won't always be right (who is) it will be based upon observation, expert opinion and critical theory. Hopefully that will keep me in the neighborhood of being accurate.
    28 Nov 2012, 05:17 PM Reply Like
  • counting_zeros
    , contributor
    Comments (3) | Send Message
     
    Thanks very much for you honest opinion. It is much appreciated here and on other message boards.
    29 Nov 2012, 02:38 AM Reply Like
  • coolerheadsprevail
    , contributor
    Comments (92) | Send Message
     
    EDVA,

     

    First and foremost, thanks again for the thankless contributions you have made on this and other boards.

     

    A couple questions:

     

    (1)
    Would you say that the consternation that has arisen due to your description of a "final ruling" is by and large a matter of semantics? Specifically, although, yes, according to the lingo used as part of judicial protocol, JJ did indeed issue his final ruling on the jury's verdict -- in essence affirming it -- but that in addition to ruling on motions which have yet to all be submitted, JJ still needs to issue a formal statement (for lack of a better word to describe what this document would be called) that not only explains the basis for his ruling w/citations of case law precedent, but also clearly describes the royalty base upon which the 3.5% RR rate is to applied?

     

    (2)
    Assuming the scenario where no settlement is reached, based upon your research as well as discussions with legal experts, once all motions have been submitted by both parties (GOOG this week and VRNG by 12/7), is there a typical time range after which judges typically issue their rulings on these motions? Or is there no such thing as "typical" and it could anywhere from same day to weeks?

     

    Again, much thanks, EDVA.
    29 Nov 2012, 02:49 AM Reply Like
  • EDVA
    , contributor
    Comments (117) | Send Message
     
    Author’s reply » I think it is sort of a matter of semantics as I have said JJ will rule on post trial motions as they come up. I do not think that JJ will issue any sweeping opinion (don't think that is appropriate) since it was a jury that came to a determination based upon the evidence presented at trial. In the event that he rules on something like he has obviousness or laches he has accompanied those rulings with an opinion. As for the responses to the VRNG motion for interest and supplemental damages I would think the court would respond within a week to VRNG's response on December 7th but there is no way to know for sure. I can't imagine JJ not responding within two though. I'm sure he has already considered how he might respond.
    29 Nov 2012, 06:21 AM Reply Like
  • Kevin Porter
    , contributor
    Comments (1795) | Send Message
     
    post trial motions are BEFORE final judgement

     

    after final judgement only appeals

     

    final judgement is not out..
    29 Nov 2012, 07:06 AM Reply Like
  • EDVA
    , contributor
    Comments (117) | Send Message
     
    Author’s reply » Kevin, we can agree to disagree. There has been a final judgment and I am managing my portfolio accordingly. Judge Jackson will make judgments on post trial motions but as this was a jury trial there will be no sweeping opinion document at the end as people suggest. If that were the case why would the judge have felt compelled to issue opinions now citing case law on Laches and Obviousness, two motions he did have the capacity under the law to decide, instead of holding those rulings until the end as many suggest will be done.
    29 Nov 2012, 08:22 AM Reply Like
  • Kevin Porter
    , contributor
    Comments (1795) | Send Message
     
    you were wrong about a settlement before trial start
    then wrong again about a settlement before the verdict

     

    you are stating that was final judgement based on 'someone else assured me'

     

    I am afraid you are wrong again

     

    We agree on the target, VRNG at least $10
    29 Nov 2012, 08:34 AM Reply Like
  • EDVA
    , contributor
    Comments (117) | Send Message
     
    Author’s reply » Not sure what your point is. I along with many speculated about a settlement at different points along the way and still do. One of the risks in commenting on a case is that there are points along the way where you are going to be wrong. Heck, even the vaunted Vringo attorneys got caught napping on Laches. The landscape changes in any case along the way. I am going on the advice of a patent attorney that gets $700/hr. for his services. I'm sorry but while not infallible, I'm going with that interpretation. If it turns out to be wrong I will say so. My target is not $10 by the way. I said between $13-18 yesterday. Thanks.
    29 Nov 2012, 09:27 AM Reply Like
  • Kevin Porter
    , contributor
    Comments (1795) | Send Message
     
    My point is just giving precise info about final judgement

     

    1 Juror deliberations
    2 Potential mistrial declarations
    3 Rendering of the verdict
    4 Post-verdict legal motions
    5 Judicial judgment and mandates
    6 Appeals

     

    3 - 20th november was just rendering of the verdict

     

    4 - we are at number 4 right now

     

    5 - THEN you get final judgement

     

    Regarding the targets '13-18' or 'at least 10'...
    they sound very similar right now at 3.50, believe me
    29 Nov 2012, 09:46 AM Reply Like
  • alec10983
    , contributor
    Comments (50) | Send Message
     
    EDVA, love all the updates, really appreciate it. After reading all the comments, updates and blog postings out there, I think i have a good feel of the situation now.

     

    If you could speculate, when do you think we start seeing the price move accordingly with all this information that is out there? After the judgment on 12/7?

     

    I say this because i'm holding february calls. Was expecting a price move when the trial came to a close, but as we know, that wasn't really the case. Been consolidating for a while now and not looking like its moving any time soon.

     

    Any sort of time table you can provide would be greatly appreciated!!
    29 Nov 2012, 05:20 PM Reply Like
  • alvarovc
    , contributor
    Comments (141) | Send Message
     
    Lucky you alec10983, unfortunately I'm loaded with Dec Calls...!!!

     

    EDVA: when you say that you think that we will see a future valuation between $13-18 per share, what is the time frame do you expect this? I mean, how long after favorable news for VRNG become public could the share reach this level? I would be more than happy if it reaches $10 before Dec calls expire!
    30 Nov 2012, 03:02 AM Reply Like
  • Kevin Porter
    , contributor
    Comments (1795) | Send Message
     
    As expected GOOG filed yesterday

     

    GOOG basically admitted jury miscalculation but they are asking other defendants damages to be lowered !

     

    This is really ridicolous!

     

    At this point JJ will have to fix the math error one way or the other

     

    99.9% in VRNG favor imo as I have always said
    30 Nov 2012, 07:19 AM Reply Like
  • Kevin Porter
    , contributor
    Comments (1795) | Send Message
     
    Of course VRNG will file the same kind of motion in the other direction before 12/07

     

    GOOG opened pandora's box, kind of a stupid move

     

    VRNG motion is supported by evidence, will win 99.99%
    30 Nov 2012, 08:05 AM Reply Like
  • superdaemon
    , contributor
    Comments (196) | Send Message
     
    Kevin,

     

    I'm long VRNG and I agree with you. But what makes you so sure JJ will rule on the math error in VRNG's favor?
    1 Dec 2012, 06:10 PM Reply Like
  • Kevin Porter
    , contributor
    Comments (1795) | Send Message
     
    VRNG will file the same kind of motion but in the other direction of course and before 12/07

     

    GOOG argument is weaker than an Hail Mary.
    Their 2.09% number doesn't make any sense and neither the fact that their past damages number is the only one correct out of 5 (4 should be corrected lower)

     

    VRNG 20.9% number is the number provided by Dr Becker during the trial. it's clearly the correct number and only GOOG past damages needs to be correct, 1 out of 5

     

    99% win for VRNG
    1 Dec 2012, 07:52 PM Reply Like
  • rickeespal
    , contributor
    Comments (190) | Send Message
     
    kevin, that is where i am confused "supported by evidence". Goog was Becker's info was not entered as evidence. Didn't they cite cases where this would work in goog's favor? Thanks for any thoughts, I'm not lawyer, so it gets confusing.
    30 Nov 2012, 02:11 PM Reply Like
  • Kevin Porter
    , contributor
    Comments (1795) | Send Message
     
    Jury awarded 3.5% royalty.

     

    All defendants numbers are 3.5% of 20.9% (BOTH Dr Becker estimate) but Goog which is exactly 1/10th.
    It's clearly an elementary school miscalculation and only for GOOG (1 out of 5 defendants)

     

    Goog motion asking all defendants numbers to be 3.5% of 2.09% is a kamikaze move.
    2.09% doesn't make any sense and neither the fact that their number is the only one correct out of 5 (4 should be corrected lower)

     

    They are trying to kid a federal judge.
    30 Nov 2012, 02:39 PM Reply Like
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