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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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  • Google's Argument Against Interest & Supplemental Damages: 10,000 Foot View 69 comments
    Nov 30, 2012 9:06 AM | about stocks: GOOG, VRNG

    Google's argument against pre-judgment interest & supplemental damages is in. What can we glean from it? I think it is safe to say there are no surpirses. As I surmised in an earlier post Google is seeking to make the jury's calculations precedent for everything that happens from here. I might add at the same time they will no doubt be motioning the judge to enter a judgment notwithstanding the verdict which would essentially overrule the jury and find that the defendants did not infringe. So we love the jury and their calculations until we can obliterate them is Google's mantra.

    So on the pre-judgment interest Google argues (and cites Supreme Court and Eastern District of Virginia Court rulings to back it up) that it is inappropriate in view of the laches decision. I'm guessing they will win this motion. Google argues the appropriateness of T-Bill rate v. Prime rate of interest but I don't think the rate of interest is the key to this. People can argue this which is fine, I just think VRNG loses the pre-judgment interest battle.

    So on to a bigger battle (much bigger), the supplemental damages battle. Google of course argues against supplemental damages and cites the verdict form to make its argument: "what sum of money, if any, if paid now in cash, would reasonably compensate I/P Engine for any of defendants['] past infringement?" Google argues that the amount the jury awarded for each defendant was it and it covers everything right up until the verdict. Ok, this is plausible but there is a problem with this logic in that the jury did not have a royalty base for this time frame so it can be argued, and has, that the jury could not consider it and therefore was not factored into their decision. Since Google essentially punted on handing the updated revenue information over, it allows Vringo to frame them once again in that pretrial, dirty tactics, light. If you are a pessimist you can argue that Judge Jackson won't add supplemental damages and will just stick with the argument that the jury gave all the money it intended to give up until the verdict. Since JJ is a bit unpredictable there is no way to know which way he'll go.

    Now we have the Google magical apportionment theory to consider. They argue that since the award from Google was dramatically lower than the Plaintiff sought, when the math is considered, instead of the 20.9% apportionment number that Dr. Becker testified was appropriate, the apportionment should be 2.8%. Since it reinforces their own simplistic calculations, Google wouldn't dare compare this apportionment to the apportionment accorded the other defendant's which was...wait for it...wait for it...20.9%.

    So even if Google is able to convince the judge there should be no pre-judgment interest (and I'm guessing they will) and no supplemental damages (it's possible) they won't convince Judge Jackson that he did not see what he saw in that courtroom over two weeks time. Google is previewing its argument that the apportionment that should be considered in establishing a forward-on royalty base is 2.8% and not 20.9%. They will not win this argument because the evidence and even the jury's calculations when considering all defendants does not support it. So here is a prediction. Expect to see a motion to correct the jury verdict calculations with respect to Google. That motion can come at any time, it may come in the next few days, it may come after a ruling from the Judge on the motion on the table, but it's coming. Unless of course we see a very near-term settlement which despite the ferocity of Google's defense (who would expect any less) is always possible. If we don't see some resolution shortly I also expect we will see a flurry of lawsuits aimed at Google's Search customers.

    Disclosure: I am long VRNG.

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Comments (69)
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  • At least Google did not argue against 3.5% future royalty payment. That, Google admitted its infringement.


    It basically said that yes we did have infringed but we should only pay 3.5% royalty from 2.9% of the revenue not 20.09%.


    What is the ground for its argument? No ground at all.


    I truly believe that VRNG will eventually wins it all:


    Past damage $158 million not $30 million; supplemental damages and future royalty of 3.5% x 20.09% of future revenue from adWork.
    30 Nov 2012, 01:16 PM Reply Like
  • the numbers are 20.9% and 2.09% (1/10th)


    don't know why you are talking about 20.09 and 2.9
    and edva about 2.8 .........


    everyone in total confusion mode


    and past damages 158 +15 + interests = about 180-185M
    30 Nov 2012, 02:49 PM Reply Like
  • 1) this math error motion confirms final judgement is not out yet as I have been saying for weeks


    2) EDVA,where are you getting the 2.8% number?


    The situation is much simpler


    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 ridicolous at best.
    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 out of 5 according to them)


    They are trying to kid a federal judge.
    30 Nov 2012, 02:46 PM Reply Like
  • Kevin, 2.8% is the number provided by google in their most recent court filing -
    2 Dec 2012, 06:49 PM Reply Like
  • yes, it makes even less sense than 2.09%
    3 Dec 2012, 07:28 AM Reply Like
  • My forecast is JJ fixes past damages to the proper amount of about 180M after 12/07


    and there's a good chance he ups future royalties too in his final judgement
    30 Nov 2012, 03:03 PM Reply Like
  • Buy on weakness. Big reward belongs to patient investors.
    30 Nov 2012, 11:20 PM Reply Like
  • patience is the most important skill of a trader, after being right :)


    you need both to succeed
    1 Dec 2012, 07:01 AM Reply Like
  • Author’s reply » Kevin, the 2.8% is Google's calculation based on their own argument not mine. If you read their argument they will show you how they arrived at that number. My comment is that that argument is specious. I agree with you that the numbers will be fixed by JJ, (now with a formal motion for correction) and have said so from the beginning...look back on what I have written, I took a bunch of heat for sticking with that. Once again however, final judgment is in (11/20) and the parties have 28 days in which to submit their post-trial motions. If you are so certain that what I am saying is incorrect you might want to ask the company itself or check with a patent litigator or lawyer. I'm quite certain they will clear up the confusion.
    1 Dec 2012, 07:32 AM Reply Like
  • why do you call that final judgement if math error is going to be fixed ?


    JJ has to rule on future royalties too
    1 Dec 2012, 08:15 AM Reply Like
  • Author’s reply » Because there is a "final judgement" by the court which then sets the clock running (28 days) on post trial motions which Judge Jackson has authority to rule on. I assure you that this has in fact been done. Once again I invite you to either consult with the company directly or with a patent lawyer. Thanks
    1 Dec 2012, 08:31 AM Reply Like
  • So there's a final judgement number 1 and a final judgement number 2




    20th november was only the rendering of the verdict


    final judgement is after post-verdict motions are ruled


    Only a final judgment is subject to appeal and we are NOT there yet
    1 Dec 2012, 08:36 AM Reply Like
  • Author’s reply » Not going to dispute this point with you any more...we aren't getting anywhere. But yes the Judge will make other rulings, on that we can agree. Thanks.
    1 Dec 2012, 08:48 AM Reply Like
  • Can the final judgment be made in December after both parties submitted their motions?
    1 Dec 2012, 11:43 AM Reply Like
  • yes


    probably a ruling on math error first


    and then final judgement including future royalties ruling later
    1 Dec 2012, 01:00 PM Reply Like
  • VRNG has one week to give its motions. So far it only has two: one on interest; another one supplemental damage but no on the math error.


    Do you think it will have a motion on that?


    What additional motions the company may have?


    Normal final judgment will be given with two months of verdict. Therefore it should be given by the end of this month.
    1 Dec 2012, 06:02 PM Reply Like
  • yes there will be one motion on jury miscalculation 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, 07:53 PM Reply Like
  • A bit more on an appeal


    1) an appeal is not de novo


    2) if you had a jury trial, it is very difficult to win an appeal, almost impossible


    3) The appellate court can only reverse the trial court's decision if it finds a legal mistake in the trial court proceedings that was so important that it changed at least part of the outcome of the case.
    The fact findings of the jury re infringement will stand here. Google can't change that.


    Basically Google has already lost it all


    There could easily be no appeal at all, otherwise google will risk the laches
    2 Dec 2012, 12:19 PM Reply Like
  • What's your opinion on timeframe for final judgement?
    2 Dec 2012, 01:34 PM Reply Like
  • jury's math error now becomes Google's weapon to reduce its future damages by ten fold:


    That is, in jury's $30 million past damage award, Google is responsible for $15.8 million, which is 2.8% of increased revenue x 3.5% royalty rate not 20.9% of increased revenue x 3.5% royalty rate.


    Therefore, Google said that means future damage should also be limited to 2.8% of increased revenue x 3.5% royalty rate.


    Let us find out whether VRNG will file motion on this errors. This is the reason why VRNG stock price is so low now.


    Up to now, VRNG has three set backs during the trial:


    1. Limit the damage calculation to US revenue only;
    2. Laches: limit the damage calculation only from the date when VRNG filed the lawsuit.
    3. Jury's mis-calculation to limit Google's past damage to only 2.8% of increased revenue not 20.9%. Google itself acknowledged that the revenue increased 20.9% after applied Lang's patents.


    Now if Judge sits with Google in his final judgment, stock will go under $3.00 for sure.
    2 Dec 2012, 07:15 PM Reply Like
  • James, I find this scenario highly unlikely. Why would the judge apply this rate moving forward on future revenue?
    2 Dec 2012, 07:47 PM Reply Like
  • It already happened once: Jury gave $30 million past damage and it is not sure whether Judge will correct it.


    Google's part is $15.8 million not $158 million. For me, it is obvious a math error but how can jury make such error is beyond imagination.
    2 Dec 2012, 08:08 PM Reply Like
  • a federal judge is anything but a stupud


    if it's beyond imagination, he will fix it
    3 Dec 2012, 07:31 AM Reply Like
  • Google is the main infringer, everyone else infringment is just a consequence


    that's why google % must be at least the same of every other defendant


    Google kamikaze move is less likely than an Hail Mary and not smart at all at this point
    3 Dec 2012, 08:14 AM Reply Like
  • from ekovak


    now Google and customers face the potential of Willfull Infringement penalties of (3x) as they have been found to be infringers, for everyday, week, month, while leading up to such an appeal court date. They have nothing per say to appeal with. The PA was debunked, the source code argument was a farce, the judge has given them significant legal opportunities in allowed motions, they failed at a rationale SJ argument, they failed in the Markman Hearing, they got half the laches argument which is an appeal for Vringo, and the royalty rate was industry standard from a jury. they got nothing!




    I totally agree


    There could easily be no appeal at all, otherwise Google will risk the laches amount (350M) and 3x damages.


    If I were Google, I'd buy the patents or VRNG for 1-1.3B as soon as possible ($9-11.5 a share) through an hostile takeover if necessary. As soon as possible means before MSFT YHOO or any other.


    They would get more than 500 patents for the same sum they'd have to pay anyway, including the 2 search patents, and that's for less than 0.5% of their market cap. Why shouldn't they do it ?
    3 Dec 2012, 08:50 AM Reply Like
  • Author’s reply » All good arguments...don't see Google coming out of pocket for $1b but I would love to be wrong. In any case they surely wouldn't unless there was a bidding war.
    3 Dec 2012, 11:42 AM Reply Like
  • as soon as math error gets fixed it's already almost $1b
    3 Dec 2012, 11:50 AM Reply Like
  • Two big issues:


    1. Future royalty payment: 3.5 x what (we all believe that it should 20.9% of increased revenue). If it is only 2.8%, that will be a bomb.


    2. Past damage: $30 million or $158 million. If it is $158 million, stock will gain 1.5/share for this alone.


    Interest is a small potato.
    3 Dec 2012, 12:32 PM Reply Like
  • 2.8% has zero sense. zero. not even remote.
    Don't know why they tried that unless they trying to make fun of the judge.


    past damages is 30 or about 180, not 158 (it's 158 goog +15 other defendants +interests)


    Could be 190M with the extra month VRNG already asked
    3 Dec 2012, 12:48 PM Reply Like
  • and think about this


    Hostile takeovers through tender offers involve the acquiring company purchasing the shares of the target firm directly from shareholders or on the secondary markets.
    Therefore, buying all or a majority of the company’s shares allows the acquiring company to possess ownership of the target company.


    They could offer $1B (9 a share) and acquire the company by owning just 51% shares.


    Thus paying only 510M vs 900M lost in in the trial
    3 Dec 2012, 01:02 PM Reply Like
  • and acquiring more than 500 patents !
    3 Dec 2012, 01:57 PM Reply Like
  • AOl, GCI, Target etc filed their motions last Friday asking to reduce pas damage to 3.5% x 2.8 of increased revenue not 20.9%.


    The reason: jury offered 2.8% to Google and they should be treated the same.


    Now Judge must take a serious consideration on the past damage. This becomes a big issue he has to deal with.


    He cannot simply let it go.


    I am looking for VRNG's motion before Friday's deadline.


    In the mean time, stock may dancing in $3.35 - $3.55.


    I have xxk in at $3.41 and will buy extra 10k for day trade.
    3 Dec 2012, 01:44 PM Reply Like
  • he will obviously have to fix it one way or ther other


    99.99% in VRNG favor imo
    3 Dec 2012, 01:47 PM Reply Like
  • Basically GOOG could offer $1B (9 a share) and acquire the company by owning just 51% shares, thus paying only 510M vs 900M lost in the trial (or even more if JJ ups future royalties)
    and getting more than 500 patents ! Why shouldn't they do it ?


    Imagine a sudden takeover bid tomorrow at $9.
    Do you think most people will hold or sell ?
    They could end owning the majority of the company in very few days and the dispute is over
    3 Dec 2012, 02:03 PM Reply Like
  • don't ever think about the impossible. No way for Google to buy out VRNG.


    The most for GOOG is to settle as they did with other such lawsuits.


    It may eventually settle for $500-$600 million.


    I originally believe that the final settlement will be no more than $200 million and now I feel that it should be in 500-600 million range.
    3 Dec 2012, 04:35 PM Reply Like
  • While I wouldn't mind selling at $9 a share, I think GOOG will definitely wait to see how this plays out. They have no incentive to do this before VRNG files their motions IMO.
    3 Dec 2012, 02:22 PM Reply Like
  • they have all the incentives to do this before a share price jump
    3 Dec 2012, 02:33 PM Reply Like
  • this is true :-)
    3 Dec 2012, 02:44 PM Reply Like
  • yes


    they pay much less and they acquire a lot of patents, including the 2 search engine ones


    it will happen imo, any day
    3 Dec 2012, 02:47 PM Reply Like
  • How can Google make money even they settle with VRNG:


    Google can buy VRNG shares at this price.


    After Judge final judgment, they will sell for a profit and used the profit to pay for the damages.


    Just a joke.
    3 Dec 2012, 04:37 PM Reply Like
  • In the event of a google buyout, would the warrants actually appreciate in value accordingly or would they have to be exercised first?
    3 Dec 2012, 05:32 PM Reply Like
  • My advice: never think about it. There is NO buy-out at all.


    Settlement will be the final outcome for this case. I am just curious why people continue thinking the impossible.
    3 Dec 2012, 06:36 PM Reply Like
  • People think the "impossible" as you call it based on the overwhelming empirical evidence in past history. GOOG has been involved in 121 merger's and acquisitions to date. This isn't a whimsical aquisition we are talking about a-la Facebook/Instagram. This is an acquisition concerning the very heart of GOOG's advertising revenue. The "impossible" seems rather probable dude.
    3 Dec 2012, 06:44 PM Reply Like
  • Yes Google had 121 acquisitions but which one is from Patent lawsuit? Give me an example.


    All the acquisitions are to grow or expand its business or expand their patent portfolio. None from court.


    But they do have few settlements after it lost in patent lawsuits.
    3 Dec 2012, 07:54 PM Reply Like
  • Are you serious???? Motorola mobility was their largest acquisition. They were acquired for their patents.
    3 Dec 2012, 07:58 PM Reply Like
  • Motorola did not file lawsuit against Google.
    3 Dec 2012, 08:21 PM Reply Like
  • No Motorola did not sue GOOG. My point is that their largest acquisition to date has been primarily over strategic patents for $12.5 billion.
    By imposing it's will on GOOG, VRNG has demonstrated that it's patents are at the heart of their revenue generation. This is no ordinary lawsuit and no ordinary patent. This is critical to GOOG and, in my opinion, a major enough issue to solicit buyout or takeover if necessary. I'm certain that GOOG will not hesitate to acquire VRNG if it is more financially & strategically beneficial than settling. I don't profess to know what will happen. I merely wish to point out that calling this scenario "Impossible" does not reflect that facts at hand or the gravity of the situation for GOOG.
    3 Dec 2012, 08:37 PM Reply Like
  • And acquisitions are made to help the company bottom line. If it is more financially convenient for GOOG to buy VRNG, you can bet that they will. They will not pay a multi million dollar premium to settle if the cost of acquisition is 8-9 figures lower. Dollars and cents.
    3 Dec 2012, 08:00 PM Reply Like
  • exactly


    they will pay much less to acquire the whole company (or 51-60%)
    and get all the patents


    something is very wrong with the stock price right now
    4 Dec 2012, 07:48 AM Reply Like
  • googs motto, "don't be evil", even though hypocritical, when they see someone else being "evil" towards them, no way goog is not going to put up a fight on all accounts. This may sound obvious but I see goog dragging this as far as they can. I am long, and stopped looking at the ticks. I will hold until their is a huge move.
    4 Dec 2012, 05:04 AM Reply Like
  • btw the buyout could be by MSFT YHOO or any other,
    not necessarily by GOOG
    4 Dec 2012, 07:47 AM Reply Like
  • Order of coming events:


    1) up to 12/07 VRNG response to Google on jury miscalculation
    2) any day after 12/07 JJ ruling on jury miscalculation
    3) up to 12/19 post verdict motions
    4) any day after 12/19 JJ final judgement


    Don't forget that Jury verdict took only 3 days.
    Very high chance we will get final judgement before Xmas
    or before end of year.
    4 Dec 2012, 01:00 PM Reply Like
  • If this timeline is true, then Dec calls will probably expire worthless... what are the odds?
    5 Dec 2012, 02:10 AM Reply Like
  • in October I advised to avoid any option (Nov Dec) and just buy the shares
    and have patience


    anyway it depends on the strike: math error fix is very important
    and should be ruled before expiration


    Past Damages Recap


    158M (Google past damages fix)
    15M (4 other defendants)
    15M (Oct 1 - Nov 6 Supplemental damages motion)
    + interests
    Almost 200M


    Quite a change from the current 30M


    The table of past damages presented during the trial is from Sept 15 2011 to Oct 01 2012 (only 12.5 months).
    That's why VRNG already filed a motion seeking for supplemental damages from Oct 01 to Nov 06 (day of verdict).


    173M / 12.5 months is 166M annualized
    a much better annualized number than previously thought (prev estimate 153M)
    5 Dec 2012, 07:32 AM Reply Like
  • But based on Steve Kim, there will not be a big chance the Judge will change the past damage amount.
    5 Dec 2012, 08:45 AM Reply Like
  • actually 2012 number should be about 175M since revenues are ramping vs 2011, especially mobile ads which is more than 3 times 2011
    5 Dec 2012, 08:48 AM Reply Like
  • 1) VRNG is seeking injunctive relief, rendering of accounts, recall and destruction of allegedly infringing products, and monetary damages vs ZTE in Germany and UK


    Germany + UK 145M people market


    ZTE Android -> Google


    2) Motorola probably sued in future
    4 Dec 2012, 02:10 PM Reply Like
  • search patents (adwords), telecom patents (android+motorola),
    extremely depressed stock price


    really can't see how GOOG could not be interested in buying VRNG
    4 Dec 2012, 03:10 PM Reply Like
  • I agree
    4 Dec 2012, 04:53 PM Reply Like
  • I have just read GOOG motion again


    that 2.8% number they are claiming is simply absurd, they are mad


    their past damages is 1/10th of other defendants, so 2.09% instead of 20.9%


    the 2.8% number is coming from fantasyland, really incredible,
    they are kidding a federal judge
    4 Dec 2012, 04:50 PM Reply Like
  • I don't even see where they explain why 2.8.
    4 Dec 2012, 04:58 PM Reply Like
  • infact they didn't explain it,
    they are surely trying to create confusion intentionally


    they say 20.9% is not supported by jury's findings
    it's supported by 4 defendants out of 5
    4 Dec 2012, 05:06 PM Reply Like
  • Clearly in GOOG logic 80% of defendants awarded one number means the jury miscalculated 4 times out of 5. it makes perfect sense. lol
    4 Dec 2012, 05:08 PM Reply Like
  • I am surprised they didn't claim it to be 3.5% of 0.00209%


    JJ should fix the math error which is 101% due
    but also punish them with 5-7% future royalties
    4 Dec 2012, 05:12 PM Reply Like
  • Google is shameless. They want to use Lang's patents for almost free for the next four years.


    VRNG will fight with them to the end.
    4 Dec 2012, 05:17 PM Reply Like
  • btw imagine Vringo asking for an injunction immediately after starting a new search engine ?


    that would be fun


    they could ask 5B after that
    4 Dec 2012, 05:22 PM Reply Like
  • Yes I would like to see it. After Jury final judgment, VRNG will announce that they will start developing their own search engine and put injection on Google's.
    5 Dec 2012, 09:23 AM Reply Like
  • yes


    at that point GOOG would buy VRNG for any sum (x Billions) without risking an injunction ruling
    5 Dec 2012, 09:29 AM Reply Like
  • I have just noticed I was wrong about the annualized number 173M divided by 13.5 months, it's actually divided by 12.5 months.


    Numbers are MUCH BETTER than my previous estimate


    The table of past damages presented during the trial is from Sept 15 2011 to Oct 01 2012 (only 12.5 months).
    That's why VRNG already filed a motion seeking for supplemental damages from Oct 01 to Nov 06 (day of verdict).


    173M / 12.5 months is 166M annualized
    a much better annualized number than previously thought (prev estimate 153M)


    Actually final 2012 number should be about 175M since revenues are ramping vs 2011, especially mobile ads which is more than 3 times 2011


    Future Royalties might be higher than 3.5% or JJ could up the 20.9% AdWords portion.


    Using only 3.5% of 20.9% and a very conservative 11% y/y AdWords growth we have 740M of future damages.
    Skyrocketing Google mobile ads (2016 estimate is almost 4 times 2012)
    will probably fuel overall ads growth to 20% Y/Y and we have 880M of future damages.


    Future Damages
    740M very conservative
    810M conservative
    880M likely
    950M possible


    MUCH BETTER than my previous estimate
    5 Dec 2012, 09:41 AM Reply Like
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