Seeking Alpha

Justin Giles'  Instablog

Justin Giles
Send Message
I have been investing in the stock market for a number of years now. I invest mostly in value and growth stocks with a taste of the occasionally momentum plays. Recognized as one of TipRanks 2013 top financial experts. My recommendations have given investors average returns of more than 25%.... More
My blog:
Justin's Instablog
  • Vringo Delivers A Knockout Punch To Google: Enhanced Royalty Rate Seems Imminent For Vringo Now 0 comments
    May 24, 2013 6:31 PM | about stocks: VRNG

    May 6, 2013, marked the sixth month anniversary since the verdict was read in the Vringo, (I/P Engine) vs Google (NASDAQ:GOOG) et al case. In that case Vringo (NASDAQ:VRNG) slayed Goliath, as a jury found Google liable for infringing on Vringo's '420 and '664 patents. Vringo was awarded $30 million in past damages, as well as an ongoing royalty rate of 3.5% through the first quarter of 2016.

    Yesterday, Vringo fired the last shot at Google, with its latest post motion filing. The filing contains Vringo's reply in support of its motion for an award of post-judgment royalties. As news of Vringo's filing spread, investors cheered, knowing that the outcome in the case will soon come to a close. After reading Vringo's reply over, here are some of the things that caught my attention.

    Google Keeps Digging A Bigger Hole

    During the trial Google claimed that its system was not infringing Vringo's '420 and '664 patents. Then oddly enough, Google worked around the patents according to their latest representations. Think about this for a moment. Why would Google go through the trouble of working around the patents, if they weren't supposedly infringing in the first place? Then in their latest filing, Google turns around and tells the court that they've been working on changing the system long before the trial even began. This doesn't add up and seems rather fishy to me. Like Vringo has already stated, "The Court should "proceed with caution" before crediting Google's logically incompatible argument."

    Of course this was no surprise to Vringo, as it blasted Google's response in its reply. Here is an excerpt from Vringo's recent filing:

    "Defendants' design-around claim is not properly before this Court; it is a red herring meant only to hijack I/P Engine's ongoing royalty motion. Even if Google has or will design around the patents-in-suit, this has no impact on the ongoing royalty rate for the already adjudicated infringing system-again, which Defendants admit was in use until at least May 11, 2013. Defendants' argument that its newly asserted design around should lower the ongoing royalty rate is also unsupportable for four additional reasons. First, there is no credible evidence substantiating Defendants' claim that Google's current system no longer infringes I/P Engine's patents. Defendants have introduced no evidence into the record explaining how the alleged redesigned system works; nor have they provided any technical expert opinions that the purported redesigned system does not infringe."

    Google's Workaround

    Last week, Google informed Vringo that it had successfully found a way to work around its patents. What some people previously thought was just a rumor, is now reality based upon Google's representations.

    In the filing Google claims that its "new" system is one that falls outside the scope of any of Vringo's patents and therefore does not infringe. Google goes on to say that it shouldn't be liable for any royalty payments made after May 11, 2013, when the system was first launched. Here is an excerpt from Google's latest filing:

    "As a result, to the extent any royalty is appropriate, no royalty could be awarded for any time after May 11, 2013, when the launch of the redesigned system was completed."

    Vringo's management team, as well as its investors knew that Google was going to throw everything at them. I mean why wouldn't they, what else did Google have to lose? After looking over what Google had to say in its filing, Vringo brought the heat right back to Google saying:

    "...if Google's design-around efforts were truly successful, Defendants should prefer a running royalty to a lump-sum payment. With a running-royalty structure, payments cease being due if and when Google's system is established to no longer infringe. There is no rational basis for Google to oppose a running royalty limited to infringing use when Defendants actually believe that any and all infringement has already ceased. (Id.). And yet, Google vigorously opposes a running royalty while simultaneously touting the existence of a nine-day-old work around that would cut off any royalty obligations. The Court should "proceed with caution" before crediting Google's logically incompatible argument."

    Wow! Talk about a knockout punch. And who said this stuff wasn't entertaining again? Thanks to Google and Vringo, I've never been so excited to read court documents before. The fun doesn't stop there. Vringo concludes that because of Google's continued willfulinfringement, it's entitled to an increased royalty rate of 7%. Vringo put it clear as daylight saying:

    "Defendants' ongoing infringement is undisputedly willful. Defendants are fully aware that their use of AdWords has been adjudged to infringe all of the asserted claims of the valid and enforceable patents-in-suit. Judgment has been entered against them, and yet they continue to infringe."

    Vringo went on to show the court how this should be done as well as the case law that supports the enhancement of royalties. In the filingVringo said:

    "To establish the ongoing royalty rate, this Court should use as a starting point the jury's 3.5% finding; but this does not end the analysis. The case law shows that there is an additional two-step approach to calculate the appropriate post-judgment royalty rate for continuing infringement. First, the Court should establish a new ongoing royalty rate by using a modified Georgia-Pacific analysis. Second, the Court should enhance that royalty rate based on the Defendants' established deliberateness and willfulness for their continuing post-verdict infringement."

    "For these reasons, and as set forth in its moving papers, I/P Engine respectfully requests that this Court enter an Order requiring that, for the period from November 20, 2012 through April 4, 2016, Defendants pay I/P Engine ongoing royalties computed on a base of 20.9% of Defendants' U.S. AdWords revenues, at a running royalty rate of 7% of that base for Defendants' continued willful infringement."

    Vringo Doesn't Seek Treble Damages

    Do you remember when Vringo first filed it claims against Google? Vringo stated that Google was infringing on its patents. Vringo did not claim that its patents were being willfully infringed by Google. Because of that, Vringo did not ask for treble (triple) damages, but asked for royalty payments instead. Why is this so?

    There are many theories as to why. Some said it would be to harder to justify and to prove. Others said Vringo would be asking for too much and would be simply overreaching itself. Looking back on it now it appears that Vringo wanted to keep its claims simple, following the basic rule: "Pigs get Fed, Hogs get slaughtered."

    It looks like Vringo had a game plan all along as now we see that Vringo stands an excellent shot at receiving an enhanced royalty rate. Why? Because of Google's continued willful infringement.


    Throughout the trial, as well as through post trial motions, Google has shown its true colors. Vringo, for whatever reason was nice enough to extend them a considerable amount of time throughout the motion process. Because of this, I feel that Judge Jackson respects and appreciates what Vringo has done. It would be hard for Judge Jackson to not notice how each of the parties have conducted themselves throughout the process. Although there is no guarantee of an royalty enhancement, Vringo's chances seem to get better by the day.

    During the trial, Google never gave the jury any way to calculate the damages. Vringo was the one that came up with the numbers, saying that the right way to do it was by calculating 20.9% of Google's US AdWords revenues, and then applying a 3.5% running royalty rate to that base.

    Through all of this, Vringo has offered detailed arguments supported by countless case law examples supporting their statements. The work that Vringo has shown the courts, cement its position as to why Judge Jackson will rule in favor of an enhanced (5% - 7%) royalty rate.

    Disclaimer: I'm long Vringo and continue to accumulate shares at these depressed levels. Like Warren Buffet has said, "Be fearful when others are greedy and greedy when others are fearful." On that note, have a wonderful day and I look forward to all of your comments and questions.

    Disclosure: I am long VRNG.

    Stocks: VRNG
Back To Justin Giles' Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers


More »
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.