Vringo Vs. Google: Outcome Probabilities

| About: FORM Holdings (FH)

With the I/P Engine vs. AOL et al. -- aka Vringo (VRNG) vs. Google (NASDAQ:GOOG) -- trial expected to come to a close today, below is my outcome probability tree. I had attended the first day of the trial in person, and have reviewed the minutes of the other days and the other filings and decisions made by the parties and the court during the trial.

First Question for the Jury: Does Google infringe at least one claim of at least one patent? (Answer must be yes or no.)

  • No (case is over, VRNG receives nothing): ~30%
  • Yes (proceed to second question): ~70%

Second Question for the Jury: Is/are the infringed claims invalid? (Answer must be yes or no.)

  • Yes (case is over, VRNG receives nothing): ~10%
  • No (proceed to question three): ~90%

Third Question for the Jury: How much is Vringo entitled to in damages for Google's infringement of the valid claim(s)? (Answer is an amount and can vary from $0 to any amount the jury thinks is supported by the evidence.)

  • Over $95 million: ~50%
  • Under $95 million: ~50%

Thus, if you sum my probabilities, my net present value to Vringo from this trial is approximately $60 million, as that is 70% times 90% times $95 million. There is an obvious possibility that either/both sides will make various appeals, so one thing I'm 100% sure of is that the end of the trial will not be the end of this case. For example, even if Vringo wins the trial and is awarded damages, it may seek to at least appeal the judge's laches decision yesterday limiting its damages recovery.

While I think both trial teams did a very good job, the biggest flaw in Vringo's argument was that its plaintiffs aren't sympathetic enough to justify the damages award they were seeking of $493 million. There wasn't, in my opinion, a compelling enough story told about how they were unquestionably mistreated by the larger defendants. There was no evidence, for example, that Google tricked them into revealing their secrets and then took those secrets and implemented them on their own. To the contrary, Google was able to tell its story of how it came up with its advertising systems without knowing about the patented ones.

While knowledge isn't required for liability per se, knowledge can have a big impact on the amount of damages awarded. Without such a compelling story to tell, I feel Vringo was incapable of building within the jury a strong emotional desire to handsomely compensate the plaintiff and severely punish the defendant. Thus, they're more likely in my mind to issue a middle of the road type of decision. The failure to be able to tell that story is one of fact, not law, and therefore it is not that the Vringo attorney's didn't do the best they possibly could with the facts they had.

Disclosure: I am short 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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