Why Microsoft's Investment History Suggests Major Upside For Vringo Shareholders

| About: Microsoft Corporation (MSFT)

Android and Adsense go hand in hand as part of the Google (NASDAQ:GOOG) ecosystem. They are the linchpins of the Google "eyeballs of billions" strategy. Get people worldwide engaged and attached to sites and devices. This strategy has mostly worked, but Google is still very vulnerable on the legal and regulatory fronts in a number of markets. Vringo is a creator of intellectual property which Google has infringed upon. Microsoft wants to attack Google in various ways. Vringo (VRNG) IP has multi-varied value to Microsoft. Vringo created the IP which is essential to online ad systems. Google has used this IP without paying. The Vringo inventions were in use and patented before the ideas for Google ever came about.

Microsoft, Nokia, Oracle all have filed antitrust complaints against Google in the EU:

A group of companies led by Microsoft have called on European authorities to launch an antitrust investigation into Google's dominance of mobile Internet usage on smartphones.

The "FairSearch" initiative of 17 companies -- which includes Microsoft (NASDAQ:MSFT), Nokia (NYSE:NOK), and Oracle -- claims Google is acting unfairly by giving away its Android operating system to mobile device companies on the condition that the U.S. online giant's own software applications like YouTube and Google Maps are installed and prominently displayed.

Microsoft has struggled for a while against multi varied competitors, but in one major area they still excel over all other big tech companies: patents. See deal with Huawei - a competitor of ZTE (whom VRNG is suing in UK, France, Germany, et al).

If one does a tiny bit of research about their past deals - we see they like having streams of income in the billions from monetizing their or other party's patents. (See this link about openwave systems deal.)

What has Microsoft done recently with patents? Lots (see this link on their AOL patent deal):

...a trove of patents to Microsoft for nearly $1.1 billion. Investors cheered the news, sending shares of AOL soaring more than 45 percent. But it remains to be seen whether one of the company's largest shareholders, Starboard Value, will find the deal sufficient.

From Android alone, Microsoft makes billions per year in licenses from handset makers. Does Vringo have anything to do with this, you may ask? The enemy of my enemy is my friend.

For Microsoft to be able to monetize the Vringo assets already in play, there can set up a number of variations all of which leave Vringo shareholders and Microsoft shareholders as big winners. Microsoft is telegraphing a big settlement with Vringo over its violation of Vringo IP. If Microsoft were to pay Vringo between the previously mentioned numbers of 71$ million and above, it will be very good news for Vringo in terms of market sentiment and strategy moving forward. Alternatively, Microsoft can create a partnership with Vringo which will hurt Google and benefit Microsoft greatly. Bing search has struggled in the market, but no one company always maintains a lead in the market forever. This partnership and win win situation would involve Microsoft investing in Vringo shares at between $7.50-$11 per share while keeping Vringo as an independent firm which allows great upside for current longs.

Why these numbers? Microsoft is very aware of the strength of Vringo's legal team. David Cohen won the biggest settlement in tech history from Apple. Vringo leadership also won one of the biggest jury awards ever against blackberry a number of years ago and almost obtained an injunction to shut down blackberry when they had smartphone leadership. Microsoft is generally struggling with phones vis a vis apple and Google. Microsoft is struggling in search generally. They need a leg up in these two areas and can obtain a no brainer legal advantages in search and hardware to club Google and Apple without too much risk going forward. Microsoft already has a very close relationship with Nokia on a number of levels. Vringo also has a very good relationship with Nokia. Vringo's head of legal strategy is David Cohen who happened to be in charge of Nokia strategy until recently.

Part of all big company strategies are nowadays somewhat legal in nature. apple fought Samsung and had a win in the courtroom in California. Google was very weak in patents recently until it purchased Motorola recently not just for hardware but for a defensive and offensive play in patents for cellular systems and other hardware. Microsoft just happens to use its IP portfolio more offensively than Google. This presents a major opportunity for Vringo in helping Microsoft attack Google, Apple and others violating various systems created not monetized yet. For these reasons and many others Microsoft is likely to want more upside in this type deal gain strategic and competitive advantages from investing in the long term value creation in the patent space. Vringo does not need a bidding war since it does not seem Google wants to engage with them. Google may have no choice but to pay a certain running royalty in the case they lost against Vringo for IP infringement. All of these factors and more will drive Vringo much higher and put it in a very unique position to grow a lot over the next few years on ways the market and investing public do not fully recognize yet. Even Apple, which is a company that has been put on a big pedestal up until recently used such strategies (see: "Steve Jobs Used Patents to Get Bill Gates to Make 1997 Investment In Apple").

Microsoft is a big player in the patent space, with over 40,785 patents. Expecting them to make a beneficial deal with Vringo is obvious to anyone having done their research. What is interesting about the company from the perspective of insiders is that they have large stakes. Typical claims from shorts are about insiders not buying:

Vringo, Inc. President and CTO Andrew Lang reported holding 7,641,932 shares of company stock. The number is equivalent to about 9.06 percent of total outstanding shares.

What is the connection between the past and the present here? NTP sued BlackBerry and won. The management of Vringo are the direct links to this case. Microsoft is formally negotiating with Vringo on settlement talks. Expect fireworks sooner rather than later.

Other authors are skeptical on VRNG. Many are shorts for a huge float of the current shares. When they are proven wrong, through Vringo creativity in their strategies moving forward, we will see multiple sharp increases in the share price of VRNG. Looking forward to seeing what happens moving forward as many are paying close attention.

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.

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