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+++ et quisquis scandalizaverit unum ex his pusillis credentibus in me bonum est ei magis si circumdaretur mola asinaria collo eius et in mare mitteretur ... Experienced speculator and student of the markets for 20 years. My professional experience in the financial industry has included:... More
  • Vringo, Google And Where 35% Came From 36 comments
    Nov 9, 2012 7:21 PM | about stocks: VRNG, GOOG

    Much discussion has taken place regarding the source of the 35% value used in calculating damages in n I/P Engine (VRNG) vs. AOL Inc., et. al. and how it could relate to a mistake by the jury in the results of damage calculations found in jury Verdict Form.

    This is a bit of a "picture is worth a thousand words" piece.

    I believe the 35% figure came from a specific slide presented during the trial. It's found in "Defendant's Notice of Lodging of Demonstratives" found here: http://bit.ly/TxlVrm
    [The original may work: https://docs.google.com/file/d/0ByyR-FelC5OTYnBxSDNHNG0zazQ/view?sle=true&pli=1]

    The slide is #12, PDX 43 in the lower right corner. A picture of it is further below.

    I believe the jury, after hearing VRNG was limited by "laches" decided to go to the high end of the range for "running royalty" damages based on what is in that slide.

    This 35% number is of course somewhat critical because of the questions swirling around part C of section III of the Verdict Form regarding a 35% vs 3.5% calculation.

    Here is the Verdict Form, page 11 is the section III Damages page: http://www.scribd.com/doc/112457351/Vringo-v-Google-Jury-Verdict-2012-11-06

    One must first understand how parts A, B, and C relate within section III of the Verdict Form. Section III provides the jury's opinion to the judge on reasonable damages. Since the decision between a one-time "lump sum" or a "running royalty" form of damages has not been decided, the form asks the jury how they think both forms should be calculated as well as which form they think appropriate.

    Part A asks the jury which they think is a more appropriate damage compensation, a "Lump sum royalty" or a "Running royalty"; the jury clearly indicated running royalty.

    Part B asks the jury what they think the rate should be IF the damages are to be compensated via "running royalty" payments.

    Part C asks the jury what they think the "sum of money, if any, if paid now in cash" should be IF the damages are compensated via a lump sum payment.

    The jury is making recommendations to the judge who decides the final award.

    It is also important to note the jury asked two questions during deliberation. One which specifically asked if the defendants could be held libel for both lump sum and a running royalty damages and if so how would that be calculated. The jury's questions and the judge's answers, as passed through the machinations of internet boards and twitter, were not specific enough to ensure the question and answers were not open to being interpreted in more than one way.

    Setting the above point aside for now, let's look at the numbers on the Verdict Form and those presented to the jury during trial in the "Defendant's Notice of Lodging of Demonstratives".

    These relate because 3.5% shows up in the "Defendant's Notice of Lodging of Demonstratives" and the same document gives some solid rationale behind why the 35% number may have been chosen.

    The pictures below come from the "Defendant's Notice of Lodging of Demonstratives" showing how a "reasonable royalty for use", according to VRNG, should be calculated.

    Notice the 20% and the 3.5% in the below in their graphical representation of Google's revenue.

    The above is slide 15, numbered PDX 46 in "Defendant's Notice of Lodging of Demonstratives", link: http://bit.ly/TxlVrm

    Notice how the 20% and 3.5% are applied to arrive at the "reasonable royalty for use" that VRNG thought it was due.

    The above is slide 16, numbered PDX 47 in "Defendant's Notice of Lodging of Demonstratives" , link: http://bit.ly/TxlVrm

    This is where the 3.5% number used in part B [running-royalty rate] section III came from.

    Now look at this slide next slide, from the same document.

    It comes from a Google explanation of how "SmartASS" impacted revenue and clicks. Remember, this is a Google marketing piece to entice customers to use their product.

    Notice the "an immediate 20% gain" and the "Now difference is probably >40%".

    The above is slide 12, numbered PDX 43 in "Defendant's Notice of Lodging of Demonstratives", link: http://bit.ly/TxlVrm

    This is where I believe the jury came up with the 35% number used for part C [lump-sum] of section III in the Verdict Form. Google product citing the performance impact of "SmartASS". Ironic name, huh.

    So, there is reasonable rational, supported by court documents and Google's own words, for the 35% number to be used for the lump-sum calculation of Google's damages to VRNG.

    Now on to the 35% vs 3.5%.

    It is clear the jury used 35% consistently for four of the five defendant calculations in part C.

    Yet used 3.5% for only one of the five, that being GOOG's damages.

    Now look at the following calculations using 35% for AOL, IAC, Gannet and Target, and 3.5% for Google.

    Notice all are very close to those found on page 11, part C section III, of the Verdict Form.

    3.5% formula

    Google $451,190,903 x 3.5%= $15,791,681

    Verdict Form # 15,8000,000.00

    35% formula

    AOL $22,693,517 x 35% = $7,942,730

    Verdict Form # ------------> 7,943,000.00

    IAC $18,917,570 x 35% = $6,621,149

    Verdict Form # ----------> 6,650,000.00

    Gannet $12,348 x 35% = $4,321

    Verdict Form # ----------> 4,332.00

    Target $282,380 x 35% = $98,833

    Verdict Form # -----------> 98,833.00

    The first numbers in the calculations above are from the VRNG provided "Reasonable royalty for use of patented technology" numbers resulting from their calculations shown in the "Reasonable Royalty" slide above. They are:

    Google $451,190,903

    AOL $22,693,517

    IAC $18,917,570

    Target $282,380

    Gannet $12,348

    So which makes more sense?

    A. The jury was trying to figure out a way to calculate the correct "lump sum" number and "running royalty" number so as to keep the judge from being too light handed or heavy handed by applying either or both calculations. So they decided to reduce GOOG's potential lump sum damages to 1/10th of the other companies?

    Or.

    B. The jury all agreed the defendant most active in the participation of infringement, GOOG, should receive a 1/10th as punitive punishment of those who merely bought their services?

    Or.

    C. The Foreperson, and possibly the person who wrote the numbers on the Verdict Form - they could be different people - missed the error simply because they were not familiar with large numbers and do not have an experienced based "that doesn't make sense" subconscious trigger?

    Look at the numbers on the Verdict Form in another way, with the error of 3.5% vs. 35% used, but with the decimal moved left four places.

    Google $45,119 x 3.5%= $1579

    AOL $2,269 x 35% = $794

    IAC- $1,891 x 35% = $662

    Gannet $1.00 x 35% = $0.35

    Target $28.00 x 35% = $9.80

    Does anyone really think none of the juror's, after seeing the above, would have said "That doesn't sound right. $1600 bucks for stealing $45,000 and only $800 bucks for stealing $2000?"

    The fact is few of people are really used to seeing really big numbers.

    I think the 3.5% calculation will be appropriately and correctly addressed by the court in VRNG's favor, after the judge talks to the jury.

    {Full Disclosure: I am long VRNG and have been for some time. Over that time I have increased and decreased my exposure. I have never been short VRNG or taken positions which would benefit from a fall in VRNG's price.}

    Disclosure: I am long VRNG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Stocks: VRNG, GOOG
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Comments (36)
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  • Author’s reply » Note bene, the above piece was rejected by Seeking Alpha's editorial staff as being "speculative" since no decision has been made on whether a "math error" occurred or not.

     

    Yet thousands of articles in which assumptions and speculation regarding every kind of company and macro economic data, and their possible changes, are published every day by Seeking Alpha and its contributors. Which is fine, SA is a private company and I fully support such self-determination.

     

    I make this comment only so others can develop their own opinion regarding the editorial influence which determines what is published under Seeking Alpha's imprimatur. Knowing this is important since published articles have a direct tie to monetary revenue for SA and as such in Seeking Alpha's business model are similar to magazine ads.

     

    They were kind enough to allow it to be posted as an Instablog. Which does tell you SA does support free and fair discussion of issues concerning markets and their products.
    9 Nov 2012, 01:46 PM Reply Like
  • Yours is one of the most valuable articles written by a VRNG long. Thank you. Sometimes this happens w/ editors.
    9 Nov 2012, 04:53 PM Reply Like
  • Author’s reply » Re the above, here is SA's actual response why it was not accepted.

     

    SA editor's feedback09 Nov, 11:55 AM This is speculative, and we are not accepting submissions on the potential "math error" until a credible source emerges. Thank you.

     

    How this differs from someone speculating on next quarter's earnings, or how many new iPhone's Apple may sell and its impact on the company without seeing or knowing the specs or features of the new phone, or (gasp) the horror of someone estimating what Facebook's IPO might be priced at before the underwriter's road show.... I'll never know.
    9 Nov 2012, 07:27 PM Reply Like
  • Author’s reply » Thanks Modernist. Appreciate the compliment and the "it happens" support. Maybe my next piece will be less speculative and I'll earn the coveted red "contributor" side banner along side my picture. ;)
    9 Nov 2012, 07:30 PM Reply Like
  • Fortunately they have allowed it to be posted as an Instablog. It is an enjoyable and effective presentation, and I would choose 'C' above.

     

    However, I also agree that forecasting this particular matter is quite speculative. Part of my reasoning is that, not having been seated in the courtroom, it is difficult to assess the effect that the judge's denial of hundreds of millions of previously claimed dollars may have had upon the jury. The milieu remains unknown to me.
    9 Nov 2012, 02:04 PM Reply Like
  • Author’s reply » Anony,

     

    I agree with your sentiments regarding SA and allowing the above to be an Instablog post.

     

    I also agree with this being a "speculative" matter. However the dirty truth is there is really no such thing as "investing", as marketed by Wall Street and the businesses surrounding her. The word "investing" is a marketing word created by the sell side of the business community who seek capital from others, or assists others in seeking capital. Maybe I'll submit an article on that concept...

     

    As for your assessment of the milieu, I agree.
    9 Nov 2012, 02:11 PM Reply Like
  • Why isn't anyone saying/asking the following:

     

    Why is the jury EVEN applying 35% to Vringo's suggested "Reasonable Royalty Rate" in the first place?

     

    If they believed Vringo is in the right (which they do based on the verdict), why wouldn't they also think that their Reasonable Royalty Rate (RRR) was also right? It doesn't make sense that they would think Vringo was right, but only 35% right. If they wanted to limit the damages that Vringo was asking for why wouldn't they have have used a number like 75% that better reflects the feeling that Vringo was right - but asking for too much.

     

    I'm long, but I haven't gotten anyone to address this for me. And what I really think happened is that the jury was totally confused about what to do with the lump sum and what to do with the running royalty rate. Honestly, I don't blame them, it's easy to sit here playing MMQB but the perspective is different when you're in the trenches.

     

    I really think they MEANT to apply 3.5% to the lump sum damages across the board because they thought they had to apply this 3.5% to Vringo's RRR (not 35% - because 35% does not fit in at all with the rest of the case and on a simple calculator is easily mixed up with 3.5%, 0.35 v 0.035).

     

    And, am I wrong with this point... that they actually didn't HAVE to apply 3.5% or 35% to ANYTHING, because Vringo had already applied the 3.5% in their calculation (to get to the RRR of 450M from Google)...?!

     

    There was a lump sum AND a running royalty rate, and what they did, because they were confused, was combine the two for the lump sum payment (and made some calculation mix-up in the process of course).
    9 Nov 2012, 02:57 PM Reply Like
  • AGREE.

     

    All the jury had to do, in my view, was determine how much of the $451,190,903 damage estimate came from September 2011-October 2012.

     

    Alphi worked to address this here:

     

    http://seekingalpha.co...

     

    And he comes to the conclusion that approximately 35% of the $451MM was generated between September 2011-October 2012.

     

    Given the jury's seemingly difficulty with math, I do find it hard to believe that they would have figured this out on their own. Maybe they did?

     

    That said, assuming the jury made any mistake, it seems that VRNG should have been awarded anywhere between $64MM ($451MM * 1/7 [assumes 7 years of equal revenue, which is impossible, and 6 lost years due to latches]) and $158MM from Google alone.

     

    Either way, the total award should NOT have been $31MM. But you're question is right- the jury seems to have taken 3.5% OF (3.5% of 20%), which most of us will agree was wrong.
    9 Nov 2012, 03:54 PM Reply Like
  • Author’s reply » David, I'm sorry, you need to re-read and re-write what you wrote. Too much of it is simply illogical. Maybe that's why no one has addressed your questions or comments.

     

    k/r
    9 Nov 2012, 04:49 PM Reply Like
  • Author’s reply » TakeSolace,

     

    3.5% of 20% of the increased revenue is the fair way to calculate the running- royalty damages. Look at slides PDX 46 & 47....from VRNG.

     

    PDX 46 shows how after 2004, because of VRNG's idea, the ad revenue jump of 20%.

     

    PDX 47 - again from VRNG - shows 3.5% is the industry rate for search advertising technology.

     

    Now such a formula only accounts for what they should have received, without accounting for interest lost. It does not speak to punishment or damages. Which is a separate question.
    9 Nov 2012, 04:55 PM Reply Like
  • at this point, i don't care about the running royalty %. unless the judge deviates from the jury's decision, it's 3.5% (of 20%). got it. done. awesome!

     

    what i do care about is what the damages should have been for September 2011-October 2012. that's what i was trying to address in response to the previous poster. he kind of rambles on, but his point is that the jury seems to have mistakenly applied the future royalty % to the past damages estimate. which is illogical and the crux of all this business about faulty math.
    9 Nov 2012, 06:41 PM Reply Like
  • Author’s reply » Takesolace,

     

    Sorry, misread your last point. We are in agreement.

     

    Re "All the jury had to do, in my view, was determine how much of the $451,190,903 damage estimate came from September 2011-October 2012"

     

    - Here's where I get picky. In your sentence I would not have written "damage estimate". I would have written the sentence this way:

     

    "All the jury had to do, in my view, was determine how much of the $451,190,903 was to be applied to part C section III to cover the "past infringement" damages for the period from September 2011-October 2012"

     

    I think we are in agreement.
    9 Nov 2012, 07:18 PM Reply Like
  • That's fair. Indeed, I think we agree.

     

    We're all trying to figure out how the jury came up with its numbers.

     

    1) The most obvious explanation to me is that they probably applied the future royalty % to the lump sum damages amount for past infringement. Why? Who knows, but you've touched upon several explanations, including maybe reasoning that $158MM was just too big of a number for them to process and that $15.8MM "seemed" more appropriate given the figures for the other defendants. Given the length of the deliberations AND the questions the jury is believed to have asked, we can speculate that the jury dealt with some confusion.

     

    2) this has caused some confusion, but it appears that approximately 30-35% of the $493MM in damages claimed by VRNG was generated between September 2011-October 2012 (disclosure: I'm relying on Alphi's work per above and haven't done the analysis myself). If the jury was aware of this- and I have no evidence that they were as I alluded to above- it could explain where "35%" came from. In fact, it seems like it would be the correct way to calculate the damages amount (i.e. what % of the damages was generated between September 2011-October 2012).

     

    3) did the jury intend to "stick it" to Google and decide that VRNG's technology is responsible for not just 20% of Google's search-related revenue, but in fact roughly 35% (per slide 12 as you pointed out) for at least September 2011-October 2012. If that's the case, my interpretation is that $493MM is now too low (because it reflects 20%) and should be be indeed much higher (based on 35%). I believe that's what Hantrex was referring to at the end of his post. Regardless, the only consideration the jury still would have had regarding past damages (I THINK) was "What % of those damages occurred between September 2011-October 2012.

     

    At the end of the day, logic and math dictates that the jury PROBABLY made a mistake. What's frustrating to all of us is that one would think there could be some discussion between the judge and jury for clarification purposes. And here's the question the judge should have asked (in a scenario where's he's allowed to): Why did you use 35% for everyone else, and 3.5% for Google?

     

    To which the jury probably would have referred to points 1, 2, and 3 above. That's what we're all trying to figure out.
    9 Nov 2012, 08:15 PM Reply Like
  • Based on what's been posted elsewhere multiple times the process and the math is as follows:

     

    1. Must consider US sales only
    2. Must take 20% of US sales because this is the agreed upon increase in profit Google saw after implementing VRNG technology.
    3. Must take 3.5 % of #2 in order to calculate the past royalty rate total sum. This number was used because this is what VRNG asked for.
    4. The Laches ruling limited past royalty rates to 1 year (i.e. starting from the time VRNG filled the case in 9/2011). This value is equivalent to 35% of the total sum calculated in #3.

     

    OK - I don't have the exact numbers in front of me but it basically boils down to this after doing steps 1, 2, and 3 a sum between $400 and $500 million is the resulting figure and this covers past royalties from 2006 or 2007 until PRESENT. This is what VRNG was originally hoping for and requesting roughly $400 to $500 million + for past royalty infringements plus an estimated $800 million moving forward over the next 4 years for a grand total of 1.2+ billion.

     

    There should be no issues with the royalties moving forward (unless the judge changes the juries decision or Google files and wins an appeal). However, the judge threw everyone for a loop when he enforced a "Laches" ruling that limited VRNG's past royalties to starting in 9/2011 (when the case was filed) as opposed to 2006 or 2007. All of the earnings from 2006/2007 until the present are not distributed equally, so how do you calculate what portion of the $400 to $500 million in past royalties was earned between 9/2011 until the present? Well it was suggested during the trial that this number was 35% of the $400 to $500 million. This is where the 35% comes from. So if you want to calculate how much VRNG past royalties were from 9/2011 through present, then take the raw number from Google, then take 20% of that, then take 3.5 % of that, and finally take 35% of that. When all is said and done it should roughly be $158 million. However, it was bad luck that Laches ever happened and then even more bad luck that 3.5% was used twice by accident instead of 3.5% and then 35%. Now we're all in a conundrum due to a clerical error that we're hoping the judicial system can correct right now. Additionally I'd assume that VRNG will appeal the Laches motion in order to recover the other 65% of past royalties.
    10 Nov 2012, 03:01 AM Reply Like
  • Author’s reply » Cmassari,

     

    Re "2. Must take 20% of US sales because this is the agreed upon increase in profit Google saw after implementing VRNG technology."

     

    Show me where this is in the court documents. What I understand is they agreed the increase was a minimum of 20%. There was no agreement that it did not increase.

     

    That said, even if they did agree on a flat 20%, the 35% for a LUMP-SUM damage is still within reason since 20% would speak to running/ongoing damages, past, present, future and lump-sum covers only a one time award.

     

    Re "3. Must take 3.5 % of #2 in order to calculate the past royalty rate total sum. This number was used because this is what VRNG asked for."
    - VRNG asked for the 3.5% only with regard to "running-royalty" damage calculations. VRNG never asked for it to be applied to "lump-sum" award calculations.

     

    Re "4. The Laches ruling limited past royalty rates to 1 year (i.e. starting from the time VRNG filled the case in 9/2011). This value is equivalent to 35% of the total sum calculated in #3."
    - Please show the math. Otherwise it's simply an opinion...

     

    Re "OK - I don't have the exact numbers in front of me but it basically boils down to this after doing steps 1, 2, and 3 "
    - If your number 2 assertion is flawed, what you calculate after is flawed.

     

    Regardless, the rest of your thoughts are not written clearly enough or precisely enough to follow with mathematical precision. I would be more than happy to discuss the thoughts if they are written more clearly. Sorry...
    11 Nov 2012, 12:44 PM Reply Like
  • Cmasseri's analysis makes sense. Please take the time to read it carefully, and admit that you are wrong.

     

    The $451mm number that you yourself are using as a baseline ALREADY ASSUMES 20% increased revenue. Why in the world would an INCREASE in that 20% assumption lead to a REDUCTION in that $451mm number by 35%? That makes no sense whatsoever.

     

    The best reason for reducing the $451mm number by 35% is the obvious one, which Cmasseri pointed out to you, but which you have not bothered to address: the $451mm number takes into account revenue since 2006/7, but the laches ruling says the jury should only consider one year of revenue. If last year's revenue was about 35% of the entire five-years' total revenue, then that is exactly what the royalty should be based on.

     

    This is a big "if," admittedly, but its nonetheless reasonable, especially if Cmasseri is right about the 35% number being suggested in court. To me, that is the big question I want answered by Cmasseri: when exactly did they suggest this 35% figure for being the proportion of revenue generated from 9/2011 to the present?

     

    Cmasseri, if you can answer that question, than congratulations - you've solved the riddle.
    11 Nov 2012, 06:45 PM Reply Like
  • Author’s reply » JudgeScreber,

     

    Re "The $451mm number that you yourself are using as a baseline ALREADY ASSUMES 20% increased revenue. Why in the world would an INCREASE in that 20% assumption lead to a REDUCTION in that $451mm number by 35%? That makes no sense whatsoever."

     

    - The $451MM, which is the RESULTANT of the 20%, is what VRNG is entitled PART of. VRNG is not entitled to the whole increase. If I were to come into your company, and show you something that increases your revenue by 20% you wouldn't give me the whole increase would you? Of course not. You would give me a % of the increase. 20% is the INCREASE of which you would give me part.
    Re "The best reason for reducing the $451mm number by 35% is the obvious one, which Cmasseri pointed out to you, but which you have not bothered to address:"

     

    - Why do I have to address something not laid out well? If people cannot clearly lay out an argument, don't expect others to spend their time trying to figure out what is being said. If you think the argument is so good, you take the time and lay it out clearly.

     

    Re "the $451mm number takes into account revenue since 2006/7, but the laches ruling says the jury should only consider one year of revenue. If last year's revenue was about 35% of the entire five-years' total revenue, then that is exactly what the royalty should be based on. "

     

    - First off, I haven't seen any court documentation on the revenue for those years, so unless you have the numbers you are simply speculating. Setting that fact aside.
    - IF, IF the numbers work out where "the last year's revenue was about 35% of the entire five-years' total revenue" then it is NOT required of the jury make it "exactly what the royalty should be based on." The jury can literally make up whatever number or formula they want. I agree the rational makes sense and it could be correct. But it is still no different than what I offered, a theory.

     

    Re "To me, that is the big question I want answered by Cmasseri: when exactly did they suggest this 35% figure for being the proportion of revenue generated from 9/2011 to the present? "

     

    - I agree. There are many assertions being made, and few have any reference to court data. That's why I used links to court documents [I'm taking them at face value they are not fake.]
    11 Nov 2012, 09:19 PM Reply Like
  • Author’s reply » JudgeSchreber,

     

    Re "Cmasseri's analysis makes sense. Please take the time to read it carefully, and admit that you are wrong."

     

    This sentence from Cmasseri's comment: "So if you want to calculate how much VRNG past royalties were from 9/2011 through present, then take the raw number from Google, then take 20% of that, then take 3.5 % of that, and finally take 35% of that. When all is said and done it should roughly be $158 million"

     

    To get $158MM from that formula would require the starting number to be equal to $64,489,795,918.36

     

    $65 billion dollars....

     

    Cmasseri' does not understand what he is talking about.
    11 Nov 2012, 09:48 PM Reply Like
  • I've been asking this question since Wednesday morning and have the same theory:
    http://bit.ly/Th0wFc
    9 Nov 2012, 03:36 PM Reply Like
  • One important thing you are missing here. Vringo calculates the following numbers as reasonable past royalty. These are based on 20% x 3.5%

     

    Google $451,190,903 = 20% x 3.5%
    AOL $22,693,517 = 20% x 3.5%
    IAC $18,917,570 = 20% x 3.5%
    Target $282,380 = 20% x 3.5%
    Gannet $12,348 = 20% x 3.5%

     

    What you are saying is that the jury then took this number and multiplied by 35% as what they thought would be a reasonable number to represent Google's increase in ad revenue. However, Vringo's numbers already include the 20%! So you are multiplying by 20% and 35%.

     

    Verdict:
    Google = $15,800,000.00 = 20% x 3.5% x 3.5%
    AOL = $7,943,000.00 = 20% x 3.5% x 35%
    IAC = $6,650,000.00 = 20% x 3.5% x 35%
    Gannet = $4,332.00 = 20% x 3.5% x 35%
    Target = $98,833.00 = 20% x 3.5% x 35%

     

    I agree that there is a math error here, but I disagree with where you think the 35% comes from. Vringos reasonable royalty number comes from Googles Ad revenue from 2005 to present. My guess is that 35% of that came since Sept 15th, 2011 and that the jury applied 35% of the value due to laches limiting them to that timeframe.

     

    If the jury felt the 35% should be that value used instead of 20%, they would first have to remove the 20%.
    9 Nov 2012, 04:32 PM Reply Like
  • Author’s reply » Hantrex,

     

    Re "Vringo calculates the following numbers as reasonable past royalty. These are based on 20% x 3.5%. Google $451,190,903 = 20% x 3.5%"

     

    - Agreed. This is what is shown in PDX 47

     

    Re "What you are saying is that the jury then took this number and multiplied by 35% as what they thought would be a reasonable number to represent Google's increase in ad revenue."

     

    - No I am not saying this. Please re-read what I said. If you can show me where I made such a calculation I'll correct myself and note you were right.

     

    Re "However, Vringo's numbers already include the 20%! So you are multiplying by 20% and 35%."

     

    - Again, no I did not. Show me where I indicated such anywhere in the piece.

     

    Re "Vringos reasonable royalty number comes from Googles Ad revenue from 2005 to present."

     

    - By saying "Vringos reasonable royalty number" do you really mean VRNG's "reasonable royalty for use" number in slide PD X 47?

     

    Re " My guess is that 35% of that came since Sept 15th, 2011 and that the jury applied 35% of the value due to laches limiting them to that timeframe."

     

    - Why would you "guess" that 35% of the "that" (by which I assume you mean your "reasonable royalty number") came since 15 Sept 2011? Why pull something out of the air? Why do that when 35% so clearly makes sense when seen as a logical in-between number from slide PDX43's "20%" and ">40%"? If you reference court material presented supporting your "since 15 Sept 2011" guess, fine. But without such support it's a guess.

     

    Re "Google = $15,800,000.00 = 20% x 3.5% x 3.5%"

     

    - To get a $15,800,000.00 result from a 20% x 3.5% x 3.5% calculation would require the original number the formula was applied to be equal to $64,489,795,918.36. That's 65 billion dollars. So show where the jurors got such a number for GOOG's revenues in court documentation then you have something. Without such referenced documentation you are asking folks to believe the jury made up such a number from thin air.

     

    Re "If the jury felt the 35% should be that value used instead of 20%, they would first have to remove the 20%."

     

    - You are confusing the 20% number's relevance to the point you are making. The 20% number came from the simple fact it is the increase in GOOG revenue that came from the SmartASS advance/upgrade to GOOG's technology - as shown in slide PDX 46, and used in PDX 47. The 20% number is what created the "$451,190,903" number. Slide PDX 47 shows $493,093,718, as opposed to $451,190,903, simply because there was an adjustment to VRNG's calculations when they received corrected/updated revenue data from GOOG to apply the equation in PDX 47 of "20% x 3.5% = ".
    9 Nov 2012, 06:55 PM Reply Like
  • Centurion,

     

    It is often difficult to explain calculations via text like this, but I will do my absolute best.

     

    The numbers below are what Vringo calculated as being owed for past infringement going back to 2005. Where did these numbers come from? They said that Google's add revenue increased by 20% to >40% and suggested 20% to be used to be conservative. The 3.5% is their suggested reasonable royalty of that 20% increase.

     

    Google $451,190,903 = 20% x 3.5% x Total Ad Revenue
    AOL $22,693,517 = 20% x 3.5% x Total Ad Revenue
    IAC $18,917,570 = 20% x 3.5% x Total Ad Revenue
    Target $282,380 = 20% x 3.5% x Total Ad Revenue
    Gannet $12,348 = 20% x 3.5% x Total Ad Revenue

     

    So, these values include the 20% deduct already. From here, you, I, or the jury could calculate the total ad revenue:

     

    Google: $451,190,903 / 20% / 3.5% = $64,441,557,570
    AOL: $22,693,517 / 20% / 3.5% = $3,241,938,714
    IAC: $18,917,570 / 20% / 3.5% = $2,702,510,000
    Target: $282,380 / 20% / 3.5% = $40,340,000
    Gannet: $12,348 / 20% / 3.5% = $176,400

     

    I would like to reemphasize that these reasonable royalty values calculated by Vringo use 20% and that 20% is now built into that number. By multiplying it by 35%, you are then including 20% AND 35%.

     

    Also, please notice that you are incorrect in your $451,190,903 vs $493,093,718 explanation. You are speculating and stating it as fact. Want to know the real explanation?

     

    $451,190,903 + $22,693,517 + $18,917,570 + $282,380 + $12,348
    = $493,093,718

     

    In slide PDX 47 they are simply adding together the reasonable royalty of all defendants.

     

    Again, Vringo used 20% to determine their values. If you multiply their value by 35%, you are using 20% and 35%

     

    I wanted to point out that to get to $157,916,810 for Google, that you need to multiply Google's ad revenue by 20%, by 3.5% and then by 35%. If you don't agree that the 20% is built into that, then please explain to me how you arrive at that number without it. I believe the following to be correct:

     

    $157,916,816 / 35% = $451,190,903

     

    Now explain where $451,190,903 comes from without using 20%.

     

    Lastly, I would like to assert some obviousness to your claim. Vringo suggests using 20% and comes up with $451,190,903. You suggest the jury used a greater portion and used 35% to obtain $157,916,816. Why would using a higher % of ad revenue result in a lower royalty?
    12 Nov 2012, 08:28 AM Reply Like
  • Author’s reply » Hantrex,

     

    Okay, I went step by step through your comment. Before I get to that though I think what has occurred is some confusion (common I think to many of the discussions on the verdict findings) of what is or is not being focused on or discussed. E.g. I think it's common for the discussions of royalty rate numbers, royalty rate formulas, lump-sum numbers, lump-sum formulas, and all their component parts to become cross referenced and confused by both the reader and in the reply - only to have the follow on comment repeat the cycle.

     

    What I was focusing on with my original piece was the 35% vs 3.5% discrepancy and where a 35% number could be reasonably considered to come from (as opposed to the 20% number). I was taking the revenue numbers that the % numbers and formulas were operating upon at face value. However I also knew the revenue numbers being thrown about were not know with certainty to be the numbers the jury was using during deliberation. We knew some of the numbers from the court documents, but I do not think anyone knew the numbers the jury was using. So to me they became no different than a letter constant in math theory or equations.

     

    My focus was on explaining how the jury could reasonably come up with a 35% number (ie through the 20% and the >40% on PDX 43) and how the apparent difference in using 3.5% vs 35% may have occurred.

     

    All that said, IF, IF, the jury intentionally used a 3.5% or a 35% factoring in the part C calculations (i.e. as you show in 9 Nov comment - " Google = $15,800,000.00 = 20% x 3.5% x 3.5%") then IF the jury understood what they were doing, that they were further reducing what VRNG considered a fair "reasonable royalty for use" by multiplying by an additional 3.5% THEN there should be a BIG concern on the part of the longs because it shows the jury may agree with VRNG but also think - like the judge apply laches - that VRNG waited too long to be deserving of a "reasonable royalty" normally given in such cases….

     

    My suspicion, without knowing the backgrounds of any of the jurors, is the jury simply did not understand the math they were doing OR misunderstood what the "reasonable royalty for use" number they were given meant or where it came from. However not being in the courtroom, or knowing the jury….

     

    Here's a step by step walk through of your comment:

     

    Re - It is often difficult to explain calculations via text like this, but I will do my absolute best.
    - agree

     

    Re 1 - The numbers below are what Vringo calculated as being owed for past infringement going back to 2005.
    - Although I've not seen the actual court records, I've taken the numbers as being from VRNG.

     

    Re 2 - They said that Google's add revenue increased by 20% to >40% and suggested 20% to be used to be conservative. The 3.5% is their suggested reasonable royalty of that 20% increase."
    - If by "they" you mean Google then we agree.
    - regarding your "20 to >40%": - per PDX 43 "Ads before SmartASS" is a GOOG advertisement and as such a GOOG claim, not a VRNG one.
    - regarding your " suggested 20% to be used to be conservative": I agree this is what VRNG has stated in court it considers "fair"
    - regarding your "3.5": I agree with the 3.5% number and, more importantly, with the "of that 20% increase"

     

    Re 3 - Google $451,190,903 = 20% x 3.5% x Total Ad Revenue"
    - I agree, but for clarity I'd write it this way -> (Total GOOG Ad Revenue * 20%) * 3.5% = $451,190,903

     

    Re 4 - So, these values include the 20% deduct already.
    - I'll get picky here, "deduct already" is not the wording I'd use.
    - I'd say -> "So, these values are based upon an assumption of a 20% increase in GOOG's revenue due to VRNG's patents"

     

    Re 5 - From here, you, I, or the jury could calculate the total ad revenue: Google: $451,190,903 / 20% / 3.5% = $64,441,557,570
    - format of the equation aside, I agree.

     

    Re 6 - I would like to reemphasize that these reasonable royalty values calculated by Vringo use 20% and that 20% is now built into that number. By multiplying it by 35%, you are then including 20% AND 35%.
    - Okay, I see what you are saying. And I agree, but. :)
    - I was focusing on the 3.5% vs 35% discussion that was going on among VRNG followers, not on whether or not their starting number was valid or not.
    - In my piece I said "The first numbers in the calculations above are from the VRNG provided "Reasonable royalty for use of patented technology" numbers resulting from their calculations shown in the "Reasonable Royalty" slide above."
    - What I should have made more clear is I was taking the numbers being used on MB's [EDVAcourt, etc.] regarding part C [the 3.5% vs 35% discussion] at face value. I wasn't analyzing or commenting on the validity of their value. To me the discussion centered on how one defendant, GOOG, could be using a 3.5% calculation and the others a 35% calculation.

     

    Let me add one other thing, my -> "This is where I believe the jury came up with the 35% number used for part C [lump-sum] of section III in the Verdict Form. Google product citing the performance impact of "SmartASS". Ironic name, huh. So, there is reasonable rational, supported by court documents and Google's own words, for the 35% number to be used for the lump-sum calculation of Google's damages to VRNG."

     

    - Reading it now, I see how it's wording created the impression that I was saying multiplying by 35% (again, after already multiplying by 20%) was the fair thing for the jury to do for a "lump-sum" damage award calculation.
    - Again, I was focused explaining how one could argue the 3.5% was intended to be 35% - not on whether it was a fair calculation for damages.

     

    Re 7 - Also, please notice that you are incorrect in your $451,190,903 vs $493,093,718 explanation. You are speculating and stating it as fact. Want to know the real explanation? [$451,190,903 + $22,693,517 + $18,917,570 + $282,380 + $12,348 = $493,093,718]

     

    - I'll agree. I was looking at the numbers in PDX 47 (in context of PDX 46) as an example of how VRNG came up with only GOOG's number. Not as reflecting all of the defendants. Since I had not seen any court documents showing the numbers and I knew there were some "getting the right number[s]" attempts that had gone on, and since to me the discussion was about the 3.5% vs 35% I chalked up the difference to the possibility I mentioned. After seeing your calculation, it would be too much of a coincidence to be otherwise.

     

    Re 8 - In slide PDX 47 they are simply adding together the reasonable royalty of all defendants.
    - Agree. Explanation of what I was thinking in "Re 7"

     

    Re 9 - Again, Vringo used 20% to determine their values. If you multiply their value by 35%, you are using 20% and 35%
    - Agree

     

    Re 10 - I wanted to point out that to get to $157,916,810 for Google, that you need to multiply Google's ad revenue by 20%, by 3.5% and then by 35%. If you don't agree that the 20% is built into that, then please explain to me how you arrive at that number without it.
    - Agree. Like I said in "Re 6" I wasn’t focused on/speaking to that question in the piece.

     

    Re 11 - Lastly, I would like to assert some obviousness to your claim. Vringo suggests using 20% and comes up with $451,190,903. You suggest the jury used a greater portion and used 35% to obtain $157,916,816. Why would using a higher % of ad revenue result in a lower royalty?
    - I agree with your math and reasoning, but I wasn't suggesting what you say. I was only focusing on the 35% vs 3.5% use in the part C (lump-sum) calculation and saw your reference to using 20% only as a substitution.
    13 Nov 2012, 01:56 AM Reply Like
  • Centurion well pieced together great article. Let me pose the thought. Had the Jurors actually had the PROPER numbers that were infringed upon being the $67 Billion and had Quinn Emanuel and Google not played games with providing those numbers to Vringo's expert Dr. Becker the jury should have or ought to have had a proper infringed amount basing their math on those numbers. So in essence using the numbers that Vringo asked for as compensation is wrong all together. The compensatory numbers were the only numbers presented in front of the Jury if I'm not mistaken. If that is the case who erred in their Judgment, the Jurors or Judge Jackson for not allowing the proper Revenue number infringed upon?
    9 Nov 2012, 08:01 PM Reply Like
  • Author’s reply » Asia,

     

    Thanks.

     

    Know what you're saying. Courts are however notoriously unfair. Look at SCOTUS with ACA. It literally had to say ACA wasnt about taxes to hear the case (if it was about taxes they would have to throw it out until someone actually was asked by the fed gov. to pay a tax), then it turned around and said it was Constitutional because it fell under the gov. right to ... tax. Only a fool thinks judges or the courts are places of fairness or justice.

     

    One question, where did you get the "proper" $67 billion number from?
    9 Nov 2012, 08:20 PM Reply Like
  • Centurion - Having read your replies to hantrex and takesolace, I'm still confused about what you are suggesting the 35% number was meant to account for. It's clear from PDX 47 that the $493M or $451M (reasonable royalty for use) includes two factors:
    1) the royalty base percentage (20%) and
    2) the royalty rate (3.5%).

     

    The 35% (or 3.5% in Google's case) that everyone is talking about is a third factor that was taken after the above two rates had already been applied, the going theory for which is that it's a rough approximation of the percentage of past revenues that occurred after the laches date (see takesolace's point #2 above).

     

    But you seem to be suggesting that 35% is something completely different--an alternative royalty base percentage that the jury may have used instead of the 20%. But it's pretty clear that both the 35% and the 20% contributed to the verdict amount (not one or the other).

     

    I appreciate alternate theories about "where 35% came from" (the title of this article), but your explanation doesn't make much sense.
    10 Nov 2012, 03:19 AM Reply Like
  • Author’s reply » Eric_w,

     

    Re "I appreciate alternate theories about "where 35% came from" (the title of this article), but your explanation doesn't make much sense.":

     

    Look at slide PDX 43.

     

    Above the slide I state: >> Now look at this slide next slide, from the same document. It comes from a Google explanation of how "SmartASS" impacted revenue and clicks. Remember, this is a Google marketing piece to entice customers to use their product. Notice the "an immediate 20% gain" and the "Now difference is probably >40%". <<

     

    Below the slide I state: >> This is where I believe the jury came up with the 35% number used for part C [lump-sum] of section III in the Verdict Form. Google product citing the performance impact of "SmartASS". Ironic name, huh. So, there is reasonable rational, supported by court documents and Google's own words, for the 35% number to be used for the lump-sum calculation of Google's damages to VRNG. <<

     

    Again, remember, PDX 43 is a Google marketing piece to entice customers to use their product. This is important to my theory.

     

    So the jurors when looking at part C, the lump-sum calculation, saw in Google's marketing product an good basis for a macro % calculation. Here's the way I think the idea could have been thrown on the table:

     

    "Folks, if Google says in PDX 43 it improved their SmartASS by an immediate 20% and now is over 40% we'll take them at their word. So let's use 50% for the higher number since it will lean the lump-sum number we are calculating for part C higher and send a punishment message. Yet at the same time 50% is not wildly outside Google's own ">40%" in their advertisement for SmartASS. So let's use 20% and 50% and split the difference…."

     

    Doing the math…(20+50) / 2 = 35%

     

    That kind of "common sense" is the way people and jury's think when they face the responsibility of justice. They seek common sense. They don't try to figure out how to re-do the math of Wall Street thrown at them by lawyers. They look for what makes common sense justice to their conscience and fellow man.
    10 Nov 2012, 11:38 AM Reply Like
  • Author’s reply » Eric_w,

     

    Re " I'm still confused about what you are suggesting the 35% number was meant to account for."

     

    The 35% has nothing to do with running-rate royalty calculations. It is mere chance that my theory on where the lump-sum 35% number came from happened to work out to 35%. If PDX 43 had numbers of 15 and >25 the theory would have resulted in a 20% number. Which I'm sure would have gotten many worked up over the 20% number in slide PDX 46….

     

    Re " The 35% (or 3.5% in Google's case) that everyone is talking about is a third factor that was taken after the above two rates had already been applied, …"

     

    Nothing indicates the jury calculated parts A & B before C. In fact it's arguable that part A was answered last because jurors wanted to know the numbers to parts B & C before voting on which they though more appropriate to apply - which was the question in part A.

     

    Re " But you seem to be suggesting that 35% is something completely different--an alternative royalty base percentage that the jury may have used instead of the 20%."

     

    I have not once used the phrase, "royalty base". Why would you come to such a conclusion.

     

    Re "But it's pretty clear that both the 35% and the 20% contributed to the verdict amount (not one or the other)."

     

    Agree, but I never once said the 20% number, which came from slide PDX 46, was wrong or asserted the 35% number replaced it. The 35% number was applied to the result of the 20% being applied to Google's US revenue because that is the minimum amount Google said SmartASS increased their revenue.
    10 Nov 2012, 11:53 AM Reply Like
  • The 20-40+% on PDX 43 and the 20% on PDX 46 are both about the same thing: the amount that revenues increased due to the switch from DumbAds to SmartAds. Do you dispute this?
    11 Nov 2012, 01:19 AM Reply Like
  • Author’s reply » Eric_w,

     

    Do I dispute your assertion? Not sure, PDX 46 & 47 are speaking to snapshot moments in time. PDX 43 speaks to a longer time period.

     

    If your "40+%" is the same as my ">40%" and comes from PDX 43's "Now difference is probably >40%", we agree.

     

    If you mean the 20% in your "20-40+% on PDX 43" is the "same thing" 20% found on PDX 46, then we agree.

     

    However here's were my hesitance comes from. Since PDX 43 speaks to a period of time and PDX 46 & 47 are merely illustrative examples of a snapshot in time.

     

    IF PDX 46 correctly represented the increase impact of SmartASS after of the immediate 20% impact as indicated by the "Now difference is probably >40%" in PDX43....

     

    AND reflected the macro Google compounded YOY growth...

     

    THEN it would not be a straight line but a slightly upward curved line, like a ski jump.

     

    If you agree with the above, I think we are in agreement.
    11 Nov 2012, 12:23 PM Reply Like
  • If July 2004-Sept 2011 was taken out of play by JJ, then he should have said, "Since only Sept 2011-Oct 2012 are the eligible months, HERE are the eligible REVENUES from that time period: $X from Google, $X from AOL, etc..."

     

    Boom, done. No percentage application/multiplica... (unless they want to arbitrarily de-rate this - which is their prerogative), just the full revenue amount from the last year, or rather, 20% x 3.5% (the applicable % due Vringo) of the full revenue amount from last year.
    10 Nov 2012, 08:00 AM Reply Like
  • Author’s reply » David, there's a saying for what you've said.

     

    Should'a, could'a, would'a....
    10 Nov 2012, 12:00 PM Reply Like
  • quoting above - is this a verbatim record of the court?

     

    3.5% formula
    Google $451,190,903 x 3.5%= $15,791,681
    Verdict Form # 15,8000,000.00

     

    who writes the verdict form, the jury?

     

    so all of this hullaballoo is because the comma is in the wrong place? it's supposed to be $158m instead of $15.8m?
    11 Nov 2012, 01:25 AM Reply Like
  • Author’s reply » Re "is this a verbatim record of the court?"
    - Look at the links. I am taking them at face value.

     

    Re "who writes the verdict form, the jury?"
    - The court creates the form based on the judge's instructions, the juror's fill out the form.

     

    Re "so all of this hullaballoo is because the comma is in the wrong place? it's supposed to be $158m instead of $15.8m? "
    - Decimal in the wrong place, not a comma. The decimal results in the comma in the "wrong" place.

     

    It all comes down to this.

     

    Why would the jury use a formula with a 35% damage for all the jurors except Google?

     

    Why would the jury award 1/10th the damages to the company most actively infringing VRNG's patents? Remember, the other companies merely bought GOOG services, they are GOOG customers.

     

    The analogy I use is a bank robbery.

     

    GOOG, by using I/P Engine's (VRNG) idea, was "holding the gun". The other companies were "holding the bags".

     

    Does it make sense to punish the guys who were not holding a gun 10X more harshly than the guy holding the gun?

     

    What makes more sense, the jurors made one calculator entry error or four calculator entry errors?

     

    What adds to the confusion is the 35% number. Where could it have come from. That is what my piece spoke to.
    11 Nov 2012, 12:34 PM Reply Like
  • Maybe it is off topic, but Exhibit G (PDX 71?) implies that Google was not awarded a patent because of a '799 patent?
    11 Nov 2012, 12:27 PM Reply Like
  • even though I wish you were right on the 35%, the 35% you are talking about is the amount that the 420 and 664 help google gain from there dumb system before adding Lycos. VRNG was low end of the benefit by claiming 20% but as high as 40%. if the Jury was to grant them 35% then the formula for calculating damages is:

     

    1) add up all of google revenue from laches date (sept XX 2011) then remove all of Motorrola Mobility,
    2) times by .96 (96% revenue from ads)
    3) times by US revenue (this number is a hard one to know without seeing there books so anywhere from 45-60%)
    4) times by the gain percent from Lycos patent VRNG said 20.9% but could be as high as 40 so .209-.40)
    5) Time by 3.5% royalty rate for the patent .035

     

    That how VRNG calculated there dames for ~500Million. now how the jury came up with 15 Million? is anyones guess.
    11 Nov 2012, 04:40 PM Reply Like
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