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VRNG: Deconstructing Ravicher & Other Thoughts

|Includes:FORM Holdings Corp. (FH)

Just for fun lets take the latest SA offering from Dan Ravicher ["DR"] and examine it paragraph by paragraph. Remember, an "expert" parroting a position that has little basis in fact does not somehow make it more likely to materialize. Just as important if not more so, is that one should not "act" on such a position if it involves the stock market as doing so may be tantamount to fleeing your house given an earthquake warning in an area where little threat exists only to find out later that the "new" invention claiming seismic activity was suspect.

In the third line down in the first paragraph the word "mere" implies "paltry" and therefore in that context suggests the jury felt the suit brought by Vringo must have been something less than significant. I argue vociferously that since Vringo won on all counts with respect to infringement, the jury's state of mind, particularly in light of the questions they asked of the court during deliberations, was probably quite punitive. The remainder of DR's first paragraph seems to mimic the argument of one of the litigants (guess who). The second paragraph begins with what seems to be a thinly veiled warning that Google intends to double down on the specious argument of damages with respect to the jury tabulations. This argument is not centered on facts presented during the trial but no matter, lets stay tuned to see if a federal judge is willing to rule for something that was not presented in his courtroom. The author suggests that people should worry about this.

Further on, DR talks about the "successful" opening of a separate front in this case, meaning simply that the USPTO will review the Lang 420 Patent. It is interesting to speak of this as though one has gotten the last seat on the next Russian excursion to the international space station. Far from being terribly difficult, reexaminations with a reasonable presentation of something new referenced as prior art often get the nod. DR goes on to discuss how he has warned in the past that an appellate court may overturn the jury's finding of infringement and validity but does little to offer the reader an accurate picture on how long the odds are against an appellate court doing so (and they are very long indeed).

So this is where critiquing all of DR's arguments becomes tedious, as on closer inspection they often appear slanted, illogical and inaccurate. As a result we are not going to proceed paragraph by paragraph and will simply confine ourselves to the major weaknesses. One weakness is to suggest that the PTO will permanently invalidate all of the 420 claims in the "near future" without providing anything but a passing reference to Vringo's response. Since the average wait for the USPTO to get to a final action is 25+ months, and since the PTO hasn't even decided yet to review the 664 Patent, DR appears to be taking liberties with the expression "near term."

A quick note for you math geniuses out there: DR claims that Vringo will not see hundreds of millions of dollars but leaves open the possibility that Vringo will be paid up until the USPTO decides its final action. From my calculations this would appear to be around the first week of November 2014 (or perhaps longer depending upon whether the 664 Patent is reviewed). So that would be two years worth of royalty payments to Vringo. Since DR has made the case that a narrowing of the claims to avoid invalidity by Vringo could lead to a successful workaround by Google, one may infer that a workaround is unlikely to be successful until such a decision (if it ever is) is made by the USPTO.

Lets marry this thought with another of DR's observations. He states that the court has neither ruled on the question of obviousness nor a future royalty rate. In fact the court has ruled on both (see docket numbers 799 here & 801 here) and did so on November 20, 2012. While perhaps not as artful and fulsome a description as some would like, line three on 801 has the important sentence "The Running Royalty Rate is 3.5%." If one assumes that the Judge used the apportionment rate of 20.9 % established by Dr. Becker (the only one presented at trial) multiplied by 96% of Google's U.S. revenues multiplied by 3.5%, we get a total of $316M (based upon flat revenue) up until the average time in which the USPTO normally rules. So if we square this interpretation of the logic of Professor Ravicher with the rest of his argument we get back to the only thing he can hang his hat on to arrive at a figure that is less than the several hundred million he says won't happen. And that is that the Judge must use math that was not presented at trial. I have said before that it remains a possibility that the Judge for some reason will decline to correct the past damages or even offer supplemental damages. For the record I expect that he will not decline to do so since he likely knows an appellate court will correct if he doesn't. But to think that the Judge might move from being someone who will not overturn or increase past damages to an active participant in fuzzy math is beyond the pale. Therefore, it is my opinion that DR has already lost his argument against an award of multiple hundreds of millions to Vringo.

A few other observations: One, I think we will see a ruling on the interest and supplemental damages prior to the other rulings. This is the main reason that Vringo did not explicitly ask for a correction when they filed the response to Google on this same motion. If they had it would likely have delayed a decision by the court and perhaps even resulted in a hearing. Vringo knows that if the Judge does the correct math on the supplemental damages that whether JJ fixes the past damages or an appellate court does, it is probably going to happen. This ruling will also clarify how the future damages are to be calculated since the court will have done this calculation for the supplemental.

Food for thought…there is no way for us to know whether a juror has come forward to speak about the past damages. We live in a digital age and one or two of them may just be curious enough to see how this all turns out. If so, they may well have seen that there is conflict about this verdict. If you spent a few weeks of your life on a case of some import and felt you may have gotten it wrong would you want to do something about it? I'm not saying this has happened but it seems strange that there has been no motion to get signed affidavits from the jurors. Keep in mind too that the Judge could have called one or more jurors back already. In any event big decisions are coming and my money is on the fact that what was presented at trial will prevail. In addition to his ruling on the supplemental the Judge is well within his rights to correct the past damages (see here). He may also clarify more fully what his Judgment of November 20 actually means. Why would he do all these things at once? Perhaps just to get on with it. This would leave the parties with the stark choice of settling or taking it up on appeal. I think there is an 80% likelihood we see the supplemental ruling in the next few business days and a 50% chance of the correction and clarification at the same time.

Disclosure: I am long VRNG.

Additional disclosure: These are my opinions only and should not be used in isolation to trade any security. Please do your own due diligence and/or consult with an investment advisor.

Stocks: FH