Lady Liberty Rescues Vringo; Google Royalty Tab To Exceed $1.8 Billion

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The Supreme Court Just Became Vringo's White Knight.

Google May Owe an Additional $460 million in Past Infringement Damages.

Vringo Market Capitalization To Benefit From SCOTUS Ruling.

On May 19, 2014 the Supreme Court of the United States (SCOTUS) effectively removed laches as a defense in copyright litigation. The court held that the defense of laches could not be used in place of USC Code that established the limitations of when a case could be brought for copyright infringement (Petrella v. Metro-Goldwyn-Mayer, Inc.) The court effectively strengthened the rights of US Copyright holders and by extension Patent Holders and Patent Assertion Entities. The financial toll on current and future litigation could run into the billions. Vringo v. Google is before the US Court of Appeals now, and a decision on overturning a district courts "Laches ruling" is forthcoming. Contemporaneous with this matter before the court is upholding or denying the positive Vringo jury verdict. The latter being a non-starter based on oral arguments heard. Vringo's (VRNG) court battle against Google (NASDAQ:GOOG) has been epic and in some instances an abuse of the courts. Google as a defendant, has effectively played out legal machinations so Machiavellian that Lady Justice herself could tolerate it no longer. Indeed SCOTUS has leveled the scales, and in my opinion handed Vringo a legal lightning bolt to assure victory over Google.

SCOTUS Subordinates Laches as an Affirmative Defense to 35 U.S.C. 286

Petrella v. MGM addresses whether the affirmative defense of laches can be applied during the statute of limitations period applicable to a copyright infringement claim. Like Copyright infringement, Patent infringement under separate 35 U.S.C. 286 has a definitive time period in which a claim of infringement must be brought. That period is 6 years from the date of the alleged infringement. This limitation period is counted separately for each infringing act. An affirmative defense is a fact or set of facts that, if proven by the defendant, would overcome the plaintiff's claim, even if the plaintiff's allegations in the complaint were true. The affirmative defense of laches, which is expressly recognized in Federal Rule of Civil Procedure 8, is an equitable doctrine that bars claims if the plaintiff has unreasonably delayed in bringing them and, as a result of the delay, has prejudiced the defendant. In Petralla v. MGM SCOTUS dismissed MGM's argument that because laches is mentioned in Federal Rule of Civil Procedure 8(c) as an affirmative defense, it should be applicable to all cases. On the contrary, the Court insisted that it has never applied laches to bar a claim brought within the limitations period in its entirety. SCOTUS by holding for Petralla, has removed a key and critical defensive strategy employed by highly financed and in most cases overpowering defendants.

Vringo's $460 million Windfall

Google has already been found guilty of infringing Vringo's patented technology in I/P Engine v. Google verdict of November 6, 2012. However Google was able to convince Federal Judge Raymond Jackson, using solely an affirmative defense of laches, to stop Vringo from collecting damages under 35 U.S.C. 286, prior to September of 2011. I read into the proffer on November 1, 2012 and agreed with Vringo Counsel that this order was without merit. The repercussion of Judge Jackson's order was shattering. Vringo's market capitalization fell by hundreds of millions during that fateful week of November 1, 2012. At issue was approximately $460 million of potential past infringement. Google had earned approximately $133 billion beginning in 2005 through the 3rd quarter of September 2011. Under Judge Jackson's order Vringo was barred from seeking infringement prior to September of 2011. Using the Courts approved percentage of US sales applicable, a 20.9% ruling as an effective base, followed by the jury verdict of 3.5% royalty, Vringo stands to collect as much as $460 million. Indeed, less than a week ago many had written off the collection of this past infringement, due to the lack of Q & A offered at oral arguments at the recent Court of Appeals hearing on May 6, 2014. Like many, I was aware of the Petrella v. MGM copyright case, but never expected the timing of that decision to be so pivotal in the Vringo v. Google appeal. Wasting no time, Vringo filed the citation of supplemental authority at what could have been the last possible moment. The Court of Appeals will now weigh the decision in the laches appeal, and it is my firm belief Vringo will prevail.

The Case to Revalue Vringo Common Stock

SCOTUS has changed a key legal dynamic in patent assertion litigation, and by such action now mandates investors perform a total revaluation of patent portfolios and their holders. Vringo has done an excellent job of "cherry picking" the mega patent portfolio's of both Microsoft (NASDAQ:MSFT) and Nokia (NYSE:NOK), yet with patent infringement enforcement comes the high cost of litigation. The internet's memory is forever, and defendants like Google will seek to avoid compensating inventors with the slightest inane mention of previous use of disputed technology. Defending against this form of "nonsense" is expensive and has financially bludgeoned many under-capitalized inventors and PAE's. As it applies to laches as a defense, this practice has finally come to an end. The financial savings and inherent gain of past infringement must be re-capitalized into the price of publicly trading Patent Assertion Entities. In the case of Vringo, who now holds many key patents and has multiple infringement actions underway, that value easily exceeds billions of dollars. The Google jury verdict and increased royalty motion, coupled with an apparent win on the previously lost laches revenues, totals $1.8 billion alone. A reasonable investor might find the current $282 million market capitalization to be somewhat "undervalued", given the changes outlined. Wallstreet has always valued equities on their future return. Incorporating Vringo's present and future opportunity leads me to believe a $12 to $15 per share valuation may be the future of this equity. The Supreme Court may have just expedited that eventuality.

As always the best due diligence is your own. Please consult a licensed financial professional, prior to making any investments.

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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