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Alphi
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Private investor of more than 10 years trading mainly in speculative plays.
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  • Could The VRINGO Vs GOOGLE Verdict Have Been Stymied By A Simple Clerical Error?

    A fellow VRNG watcher by the name of MikeHD has discovered something very illogical and interesting about the recent damages calculations handed down by the Jury in the VRNG vs GOOG patent litigation case.

    see mikes assessment here:

    http://www.investorvillage.com/smbd.asp?mb=17604&mn=1094&pt=msg&mid=12272669

    I do not agree with his conclusions that the jury used bad math or completely misunderstood the judges instructions.

    here's why..

    because 35% looks so similar to 3.5% many people have assumed that the jury must be applying 3.5% to the damages calculations which were supplied to them.
    These numbers were already derived from 3.5% of 20% of US revenues so it makes no sense at all that they would apply 3.5% again.
    (C'mon are we seriously trying to suggest that all 9 jurors didn't notice the flaw in that logic?)

    most people are trying to reconcile 35% with 14 months (from initial complaint) versus 6 years in the original complaint.

    at first glance 14 months does not look like 35% of 6 years..
    but the percentage is not supposed to represent the chronological proportion. It is supposed to represent the revenue proportion.

    as you can see from my spreadsheet which I posted before the verdict, the revenues attributed to 2012 are much higher than the revenues for 2007.
    this is because revenues have been growing by between 20% and 30% year on year.

    http://www3.picturepush.com/photo/a/11304676/img/11304676.jpg

    according to my spreadsheet (which uses very conservative numbers) 2012 revenues represent 25% of the damages claim.

    1 / 493 * 124.42 = 25.2%

    now we know that there are 14 months of damages being awarded so we need to do some more math.

    25.2% / 12 * 14 = 29.4%

    close but still not 35%!

    now keep in mind that spreadsheet is using conservative numbers...

    if we use the more optimistic revenue growth of 30% year on year for Google's advertising revenues (for the period 2007-2012) then

    we come up with a figure of 143.5 million claimed royalties for 2012

    Revenues back to September 2011: 143.5 / 12 * 14 = 167.41
    Percentage of 493 million as damages: 1 / 493 million * 167.41 = 34%

    lets say that for arguments sake that the jury came up with a number close to 34% and decided to round up to 35% to make things simpler.

    now that they have 35% they begin to apply it to all of the figures: (taken from mike HD)

    aol $22,693,517 x 35%= $7,942,730 damage amount $7.9mil
    Iac $18,917,570 x 35%= $6,621,149 damage amount $6.6mil
    target $282,380 x 35%= $98833 damage amount $98833
    ganet $12348 x 35%=$4321 damage amount $3432

    (Edited to fix clerical error)

    GOOG $451,190,903 x 35%= $157,916,816 damage amount $158 million.

    this means that the total damages awarded to VRNG should be closer to $172,583,849

    therefore in conclusion it is my belief that it was a simple clerical error which dropped a 0 off Google's damages number or an erroneous decimal point which was inadvertently typed into the calculator when they were applying the %35
    (after all if you keep hearing 3.5% in the court for days on end it would be a pretty simple mistake to make to type in 3.5% instead of 35% when doing the sums)

    i don't think the jury is heartless or stupid.. but I do think that like any other group of human beings.. its easy to miss a digit when you are looking at such big numbers.
    I believe the juries calculations are SOUND in accordance with their findings have given VRNG exactly what they had asked for (excluding of course the damages barred by latches which the jury cannot change)
    and further more it seems clear to me by the wording of their findings that they recommend that 3.5% be applied as a future royalty for the next 4 years.

    my guess is that none of the 9 jurors is an accountant and everyone else just took them at their word literally without looking deeper into it.

    kudos to mikeHD I would never have figured this out without his prior discovery.

    IMO the court at next sitting will fix the clerical error putting massive upward pressure on the stock.

    now that I am armed with a greater understanding of what happened I feel a lot more confident about this stock

    Disclosure: I am long on VRNG, I have not been paid for this post. Please take these assumptions as my own opinion and do your own due diligence before investing in risky stocks like these.

    Disclosure: I am long VRNG.

    Tags: VRNG, Vringo, Google
    Nov 07 10:05 AM | Link | 29 Comments
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