Vringo Settlement Talks With Microsoft; Buyout Or License?

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Many were stunned with the recent news that Vringo (thru IP Engine) had posted a letter to the Honorable Judge Koeltl that Microsoft (NASDAQ:MSFT) and Vringo (VRNG) were in settlement talks. Vringo for its part refused to comment. However, the pending litigation between the parties has officially ceased for a 60 day period. This is very exciting news to the equity prospects of Vringo, a patent monetization burgeoning powerhouse. More importantly, questions need to be asked, like why is Microsoft interested in talking about settlement when the fate of the post verdict Vringo vs. Google (NASDAQ:GOOG) litigation is on the verge of decision? Does Microsoft know something we don't? The answers to these questions rest with the Vringo legal team of Dickstein Shapiro, who is handling the settlement talks. Many things can and will happen in the 60 day litigation hold period (that started on March 27), but the investing community suspects Vringo may be negotiating more than the Lang patents in this latest bombshell.

Has the negotiations and the general terms of the offer been verbally transmitted and accepted?

It's my experience and belief that this just might be the case. While many of my colleagues will disagree, claiming the Microsoft activities are nothing more than pre-litigation posturing tactics, I tend to believe the opposite. Apparently I'm not alone in this thought as Vringo was up some 46 cents on Thursday's close. Further the art of tracking settlement data is nothing new. The United States Federal Court of Appeals has been monitoring this data and now offers charts and statistics to support settlement data across a wide variety of cases, including patent infringement.

Vringo transforming from enforcement to collection

This latest move by Vringo changes the dynamics of their current litigation and everyone is watching. Vringo shareholders could easily recoup lost gains with news of a license deal being accepted. Ramifications of this could easily fetch an increase of a $1.00 per share. Long-term royalties would add much more value, but there's more to this picture. Microsoft's Bing search engine has been an active participant in Facebook's (NASDAQ:FB) expansion plans in search and any deal with Microsoft would more than likely provide benefit to Facebook. That added value is not presently known as Facebook is making great strides in their newest Timeline product and recently disclosed friction between the partnership may create new scenarios that may exclude Bing. Further a deal with Vringo may provide advantage in keeping Bing secured to Facebook for the near future. Vringo has more cards to play in this high stakes game. Much to the dissatisfaction of Google, Microsoft is making considerable headway as being the number 3 mobile operating system. Windows 8 Mobile OS is consistently seeking advantage to separate itself from Apple's (NASDAQ:AAPL) iPhone and Google's Android IOS. Vringo's recent patent approval for the sharing of media may be icing on the cake for a combined Microsoft patent license deal. Vringo's new technology allows users the ability to select content on another friend's mobile device and vice versa, while holding simultaneous voice and data communication. Microsoft's smartphone equipment partner Nokia (NYSE:NOK) has staked everything on Windows Phone 8 and I wouldn't be surprised if Steve Elop, CEO of Nokia, had a hand in this negotiations. After all the Nokia Vringo business relationships couldn't be any better, especially after the purchase of the Nokia patents last year.

Is this a license deal or something else?

The big question now is whether Vringo is negotiating a licensing deal or much more. Microsoft just wrote off $6.2 billion in its failed investment with aQuantive and it's no secret that online advertising at Microsoft has suffered tremendously. There seems to be a disconnect at Microsoft, in finding a way to mimic Google's Adworks success. A possible Vringo acquisition may indeed make more sense than a license deal. Of course, the best time to negotiate is now, as Vringo is on the cusp of post verdict trial motions, which I previously opined about here.

Vringo turning the corner

References have been made that Vringo's future is much like VirnetX (NYSEMKT:VHC), in that key upward rally points of the stock will be the first closed settlement. Coincidentally, Microsoft happens to be the same party - which adds further fuel that something else may be on the negotiating table. Microsoft only settled after significant litigation by VirnetX, yet it appears to be resolving Vringo much differently. Microsoft's recent move adds more fire power that Wall Street has yet to fully appreciate. Many have shared that faith since the Vringo vs. Google jury verdict, further reflected in the depressed stock price. It's my opinion Judge Jackson's decision and Microsoft's interaction could provide the perfect storm environment, expediting Vringo stock on the path James Altucher had previously forecasted. The game has changed and investors holding the stock, both long and short, must rethink the value and the future of Vringo.

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