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  • What Is The Likelihood That Google Will Settle With Vringo Next Week? The Statistics Are Not In Vringo's Favor.

    Perhaps the most closely followed technology patent litigation at the moment is I/P Protect vs. AOL, Inc., et al., otherwise known to many as Vringo (NASDAQ:VRNG) versus Google (NASDAQ:GOOG). The case pits Vringo, an upstart intellectual property asset play, against search giant Google and a series of other defendants over the alleged infringement of Vringo's patented technology by Google's commercialization of Adsense.

    The case took an important turn Wednesday this week when the Eastern District of Virginia denied Google's motion for summary judgment and ordered the parties to a settlement conference next week. Perhaps surprisingly for many Vringo watchers, the stock popped more than 70% on the news.

    Commentators are now debating what will happen next in the case. Will Google settle next week? Will Google be forced to buy Vringo? The recent run up in the stock price suggests these considerations are being built into the stock price as we speak.

    So, what's the likelihood that Google will settle next week?

    Many commentators are citing an oft repeated rule of thumb that 95% of cases settle in order to justify estimates that Vringo remains undervalued together with prognostications that Vringo is set to soar to $10 and beyond in a matter of days. These expectations are due, in large part, to a prevailing belief that settlement is imminent.

    Is the "95% rule" accurate and does it help us to understand the likelihood of settlement next week?

    A deeper examination of settlement statistics, and particularly settlement statistics for patent litigation reveal a different picture. And one that suggests settlement in the Vringo case, if it comes at all, will not come as quickly as many might be expecting.

    So, 95% of cases settle, right? Well, not exactly. Although settlement rates of more than 90% are frequently cited in the press, actual rates are not nearly that high. Most commentators start with an accurate picture of low completed trial rates (less than 5%) and then assume that all the other cases are settled with some kind of economic exchange. However, this ignores the fact that a large proportion of cases--in fact, the majority--are terminated for reasons other than trial or economic settlement.

    More cautious observers of the legal system say that "most cases" settle, and this is a bit closer to the truth. But it helps to dig a bit deeper.

    The University of Houston Law Center Institute for Intellectual Property and Information Law maintains a periodically updated database of patent litigation statistics which can be found here:

    For 2005, the University of Houston Law Center looked at 2,231 patent litigation cases, and broke them down by final disposition as follows:


    Summary judgment - 7%
    Jury trial - 2.5%
    Bench trial - 0.7%
    Want of prosecution - 1.6%
    No jurisdiction - 1.4%
    Default - 1.1%

    Total adjudicated - 14%


    Consent judgment - 6%
    Voluntary dismissal - 26%
    Dismissal stating settlement - 39%
    Other agreed dismissals - 14%

    Total settled - 86%

    The results from the University of Houston Law Center study help shed light on the odds at work that Google might settle with Vringo. Contrary to the general rule of thumb that 95% of cases settle, patent litigation cases settle a bit less than 86% of the time. This sounds good, right? Well, the occurrence of patent litigation "settling" because the parties have reached an out of court economic resolution of the dispute is significantly less than that. In the University of Houston Law Center data, negotiated settlement occurred only 39% of the time.

    In the Vringo case against Google this statistic is important. Most commentators on the case wildly cite the 95% settlement number and proceed to discuss a series of reasons as to why Google would be stupid not to settle now, including the risk that they will ultimately lose, or that Vringo or the court has leverage to force a settlement because Google's motion for summary judgment was denied yesterday.

    However, the pattern of patent litigation cases simply don't support this conclusion. In fact, looking at the statistics published by the University of Houston Law Center, it is much more likely that the case will be resolved without a negotiated settlement and, indeed, without any economic payment by Google.

    While merely anecdotal, two recent high profile technology patent cases from this year suggest a very different outcome from the settlement conference next week in the Vringo/Google dispute.

    In the high profile patent litigation brought by Oracle against Google, the pre-trial settlement conference ended without resolution. The judge's order in that case regarding further settlement conferences is perhaps instructive for how Google might behave in the settlement conference with Vringo:

    The same result was reached in another recent high profile case with which almost everyone is familiar-Apple v. Samsung. That case is still embroiled in court room wrangling, even after the final verdict was reached and Samsung was ordered to pay Apple $1 billion:

    And, most recently, this:

    There is an old saying: "Don't put your faith in statistics until you have carefully considered what they don't say." In the case of Vringo against Google, the statistics clearly do not say that Google is likely to settle next week.

    As in all litigation, and indeed any particular case, it's the facts and circumstances of the particular instance that are most helpful in assessing outcome. In a follow up post, I'll address what the court documents and pre-trial strategy appear to say about the likelihood of a settlement and when we might expect it.

    Disclosure: I am long VRNG.

    Tags: VRNG, GOOG
    Oct 05 2:19 PM | Link | 19 Comments
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