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The Newest Sport: Hunting For Trolls

|Includes: ADTM, ATVI, CSCO, GOOG, MITL, MSFT, SmartMetric, Inc. (SMME), V, VHC, WDDD, XSPA

Just a year ago, placing bets on shell companies seeking to sue large companies for patent infringement saw virtually zero interest. Turn the page and a year later we find a virtual "troll" casino at hand. Finding the next possible hottest lawsuit victor in the troll space has the attention of many on Wall Street, especially after the recent success of both Vringo, Inc. and VirnetX Holding Corp., two trolls that have taken on huge corporations and come away victorious.

Back on September 17th, I profiled two companies in this space, one of them being Vringo and the other, Worlds Inc., so today I'll revisit these two along with two others.

VirnetX Holding Corp. (NYSEMKT:VHC) is a company that amazingly sports a whopping $1.69 billion (yes, I said billion) dollar market cap with just 13 employees and just this past Friday (better known as "Speculation Friday" on his show), Jim Cramer (Mad Money) told his audience that there's "huge upside potential" in the stock. Why ? Well for starters, VirnetX was awarded over $368 million dollars by a jury in a case against Apple Inc. (NASDAQ:AAPL) for infringement of four patents. Immediately after the verdict, the company filed suit against Apple once again since several of Apple's products weren't included in the initial lawsuit due to their release dates.

Back on August 1st, VirnetX won a favorable order at their Markman Hearing against both Avaya, Inc. and Siemens Enterprise Communications Inc. and just one day later the company announced a licensing deal with both NEC Corporation and NEC Corporation of America, terms not disclosed other than a one-time fee being paid along with future royalties on sales.

Earlier in July, Mitel Networks Corporation (NASDAQ:MITL) signed a licensing deal with VirnetX, also for an upfront fee accompanied by future royalties and in May of this year, Aastra USA decided to avoid litigation as well.
Also involved in litigation with VirnetX is Cisco Systems, Inc. (NASDAQ:CSCO) and their trial date approaches. To see status of all the actions taken against above named companies involved in either ongoing litigation or settlement/licensing, see page 9 of the company's latest 10Q.

VirnetX has $52 million in cash, so they're well funded, but there's over 15 million shorts betting against the company's success and eventual court rulings, so I view this stock as very risky, but also potentially very rewarding. The next catalyst will be the court's final ruling on the victory against Apple.

Vringo, Inc. (VRNG) is a company that just whooped up on Google Inc. (NASDAQ:GOOG) amongst several other large corporations, as a jury ruled in Vringo's favor back on November 6th, citing patent infringement and handing down a monetary award against each defendant plus ongoing royalties against certain parties. The company's intellectual property consists of over 500 patents and patent applications revolving around telecom infrastructure, internet search and mobile technologies. Vringo is a company that your grandmother has probably heard of by now, as it seems like there's no less than two articles written each day about this unfolding story, mostly regurgitated information from both the long and short side, explaining why their side is right and why the company will either thrive or dive based on settlements, licensing deals along with possible appeals.

With the stock now hovering around $3.00 and trading in a much less volatile fashion, the next catalyst will come from Judge Jackson's final ruling in the Google case and whether or not he chooses to alter the jury verdict, as many have pointed out the jury should have awarded $158 million from Google instead of $15.8 million. It's not surprising the jury appears to have made a mistake, as most jury pools aren't derived from the sharpest tools in the shed.

Let's also not forget that after the November favorable verdict, Vringo immediately sued ZTE Corp. in several countries and obviously their leverage for a possible settlement has been bolstered.
With a $251 million market cap, I like the stock right here, but you might have to be patient. Even though the company has plenty of cash, there's still plenty of shorts in the stock (over 11 million), although the short interest appears to be on the decline after the company's recent first victory. We've seen plenty of significant bear raids in the past and I suspect we'll see several more before all is said and done.

Another reason I like the stock here is due to my recent conversation with Eric Rice, Chief Revenue Officer for Mimvi, Inc. (MIMV.OB), who happens to be good friend of Vringo's CEO, Andrew Perlman. Rice has nothing but praise for Perlman and his team and thinks the company has a bright future with all the talent they have. Mimvi, Inc. itself is an up and coming company that's been called "The Google of Mobile App Search" and I'll talk about Mimvi more in depth on down the road, but they themselves are a company to be on the lookout for, as they're working with Microsoft Corporation (NASDAQ:MSFT) to develop products and services associated with Microsoft's Windows Azure along with their Windows Mobile 8 platforms. Mimvi is in the process of applying for several patents that could be incredibly valuable covering search and recommendation along with core algorithms, not to mention a slew of future patent applications and trade secrets under their belt. While resident bears claim that Mimvi has no patents and that all technology is wrapped up in the hands of the company's Chairman & CVO, Kasian Franks tells me that his outdated patents were transferred to Seeqpod, his old company that presented a meaningful threat to the music industry. The patents were then ultimately obtained by Sony's "Intertrust" division and are now water under the bridge and not relevant to what Mimvi is doing today. Early short-sellers in this unfolding story also repeatedly state Mimvi will be raising $2.8 million at .10 and Franks states that not only is that not true, they may not actually need to raise this money at all with the way things are progressing with Microsoft. Franks is as excited as a kid in a candy store, stating "Google search is antiquated and what Mimvi brings to the table now is unique and will change the world."

Worlds Inc. (OTCQB:WDDD) is beginning to attract more and more attention, as their June 27th Markman hearing date approaches concerning their lawsuit against Activision Blizzard, Inc. (NASDAQ:ATVI). While other patent trolls have seen their market caps explode to the upside on hopes of an eventual big payday, Worlds' current value sits in the $10 million range. The company's lawsuit claims that Activision's "World of Warcraft" and "Call of Duty" video games have both infringed on Worlds' patents that substantiate a system and method enabling users to interact in a virtual space and including computer architecture in the 3-D environment. Worlds' powerful legal counsel, Max Tribble has several impressive victories under his belt, including cases against Microsoft, Dell, Oracle and IBM.

I have reliable sources that tell me parties associated with Vringo are taking a close look at Worlds as far as making an initial investment, thus making this story that much more interesting to follow.

SmartMetric, Inc. (OTCQB:SMME) is a relatively new name whereby prospective investors are beginning to kick the tires and look under the hood, as this company won a watershed victory in U.S. Federal Appeals Court over both Visa, Inc. (NYSE:V) and MasterCard Incorporated (NYSE:MA), whereby SmartMetric's patent for any data card inserted in a card reading device was upheld. The company's CEO, Chaya Hendrick, stated, "The implications are enormous and that the court's ruling means that any time a company in the USA other than SmartMetric uses a smart card inserted into a device like a bank ATM or a cash register at a store, they are in violation of our patent." The lawsuit against Visa and MasterCard is scheduled for trial next September, assuming settlement hasn't been reached by then.

In the meantime, SmartMetric announced last week the soon-to-be launch of their Medical Keyring that can store electronic medical records and connect to any PC USB in the world. Hendrick told me in a telephone interview last week that there are 30 people in California, Argentina and Israel working rapidly around the clock in preparation of the highly anticipated launch. Hendrick also said that other biometric technology products will be forthcoming.

With a market cap of $21 million, SmartMetric is also a name to watch closely going forward for potential upside as both Visa and MasterCard have continually struggled unsuccessfully in their efforts to suppress material related to the discovery process during the course of litigation. I would urge those interested in hunting for the next successful troll to take a closer look at SmartMetric.

Disclosure: I am long MIMV.OB and WDDD.OB. 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.

Disclosure: I am long MIMV.OB, OTCQB:WDDD.