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VRNG: A Major Victory Has Been Won (REALLY)

|Includes: FORM Holdings Corp. (FH)

Like many people who have observed this case I have been left wondering how the law, as applied, can be so nebulous. We are three weeks removed from a jury verdict in which the Plaintiff in this case, Vringo, won convincingly. Like most such cases there have been many twists and turns along the way: The Markman Hearing and Ruling, Summary Judgment, Laches, The Verdict and more. All that is pretty understandable since a trial, much like a football game, comes with a combination of scores, penalties and turnovers. The big gripe in this case is that unlike a football game, even after the verdict and judgment few people seem to know the score.

Fast forward to today, Wednesday, November 28, 2012. Here is where we are (I am basing this in part on several discussions with patent attorneys (which I am not) who themselves have viewed the judgment. This is what I got out of those conversations. Note: I make no representation for anyone to trade on this information I simply share it and expect that people will do their own due diligence and proceed with whatever decisions they think best for them.

On November 20th Judge Jackson issued what was in fact his final ruling. Notice that the ruling said "Judgment in a Civil Case." Those who have speculated that only one box was checked on this form need to understand that this box was checked because it was a jury trial. The other box was not appropriate to check because the action did not come for "determination before the court" it came for "a trial by jury."

The future royalty rate is 3.5%. I have been assured that this is in fact the case. This is the rate the Judge has ordered going forward and more than that he telegraphed in court (right in front of me) that this was the rate he was likely to use. The attorney I spoke with said the Judge, by entering his judgment, has started the clock running on post trial motions, clarifications and the like. At this point we can expect to see a flurry of post judgment motions filed in the very near future if there is no settlement. It is interesting that Vringo did not wait for the Judge's final ruling to file their motion for interest and supplemental damages-it could be that they thought that the judge might be prompted by this motion to clarify the apparent past damages calculation error when he issued his judgment. He did not take the opportunity to do so but he may entertain a corrective motion in the near future. In plain English he may not have wanted to make a correction without specifically being asked to do so.

What Vringo is likely to do now. Vringo is likely to ask the Judge to clarify his ruling with respect to damages in the absence of a very near-term settlement. He has already been asked for clarification on the one month of supplemental damages. I think we are also going to see a request for clarification of the royalty base. While the parties know what royalty base was introduced at trial (Dr. Becker testified to a royalty base of 20% and Google offered no alternative royalty base), and I have been told in no uncertain terms that this is the base that will be used and would be used even in the event of an appeal, it would make sense for the judge to clarify this fact. Vringo can also request to have the past damages corrected. Again, my guess is that if we don't see a settlement between the sides shortly that request will be forthcoming. Judge Jackson will be asked to effectively move the decimal point. Keep in mind too that based on the Court's judgment of November 20, Vringo could legitimately sue all of Google's Search customers right now.

To summarize these conversations:

  • Vringo has received a running royalty award of 3.5%. Based upon past revenue figures this should be worth approximately $600+M or $150+M X 4 going forward. Since we do not know the actual future revenue numbers this is a conservative guesstimate based on historical revenues. The reality is that the numbers should be well north of this.
  • Vringo has been awarded $30M in past damages
  • I believe that the Judge is likely to award Vringo roughly $11.5M in supplemental damages (based on application of the 3.5% to Dr. Becker's royalty base) in addition to past fees and interest. This is based upon the historical number of the 3rd quarter royalty base which was approximately $1b. Multiply that by 3.5% which gives you $35M and divide by three to get an approximate one month number. It is a bit more than that since supplemental goes from October 1-November 6 but nonetheless it's a lot of greenbacks. I'm pretty certain that Google will argue simplistically that the past damage number for the supplemental month should be $1.32M based upon taking the Jury's past damage number and dividing by 12. The problem with this arithmetic is that there is no factoring by a proper or accurate royalty base and this flies in the face of everything that was presented during trial. While the judge has not corrected any math yet I don't think he is ready to participate in offering up his own miscalculations by turning a blind eye to what was presented at trial and winging it on the supplemental award.

Stock Value: So given what we know today what would be a fair valuation for Vringo? If you consider the recent 10Q from November 14th we have approximately 112M fully diluted shares. Whether the market recognizes it or not (Google surely does) we have Awards that total $600 + $30 Million (and this could well be changed but I am not using any increases here). We also have roughly $50M in cash. So $680M plus interest and fees. I speculate that after expenses and taxes Vringo would have about $500M in the bank. Now some have argued that Vringo should receive no multiple because no revenue has been secured post 2016. I don't think a rational investor looking at the history of similar companies would draw the same conclusion. I have seen a range of multiples on a handful of these companies in the range of 2.1-to more than 20. Like Dr. Becker did with royalties I would hue toward the lower end and use a multiple of 3X. I have seen one compelling report that places the value of the Nokia Patents at about 6X the purchase price. While we may not know what revenue will be derived post 2016 I suspect the market will arrive at a multiple that takes into account numerous factors and perhaps most of all Vringo's ability to successfully prosecute a case against a company like Google who can afford a battery of attorneys that are the best money can buy. Vringo's team is what is Golden here folks and that is a big part of why the market will make assumptions on revenue going forward on myriad cases. Jeffrey Sherwood who argued for Vringo in Norfolk was one of the finest litigators I have ever seen in court.

Therefore, on the basis of what we now know I think we will see a future valuation between $1.5-2 billion for Vringo or a $13-18 share price range.

I speculate that the reason we have not seen more motions filed at this point is that the parties are trying to come to an agreement. Vringo has been unnervingly silent since November 20 and as I have said above has held their fire. While a judgment has indeed been rendered, Judge Jackson still has jurisdiction to respond to these various post trial motions.

One other times it has been difficult to quickly publish information. On one message board in particular during the trial I was not able to publish during a critical time for almost an hour. I will begin to post these and other articles on my patent blog which is located at

Disclosure: I am long VRNG.

Additional disclosure: I post this information for general informational use and do not advise that you make trading decisions without consulting with an advisor or doing your own due diligence.