Google’s successful CAFC appeal has vacated Vringo’s already reduced $30M award. Could it have quit while it was ahead?
Vringo stock traded as high as $5.45 in 2013 and as low as $.67 a few days ago. It lost 80% of its value in a matter of hours when its big win was overturned by the Court of Appeals. Since then it has regained about 20% of its value. While the company’s dreams of a $1B+ payout appear to have been dashed, its future for some recent shareholders may not.
IP CloseUp readers will recall that back in February, when VRNG’s shares were touching $5, I reminded them that a big win was not certain (here).
Fresh off of a patent victory on Google’s AdWords in 2012 Vringo (NASDAQ: VRNG) was looking toward a record payout and a share price of $10 or higher. But something happened on the way to the party. On August 15 Vringo received news that it had lost an appeal filed by Google that sent the stock into a tailspin.
Business Model or Model Business?
The sudden, dramatic decline in VRNG shares begs a few questions: (1) Did Vringo over-emphasize the importance of the single victory? (2) Is its business model dependent on a big win and there is little else for investors to? (3) Does it simply not care about spikes in its share price?
Loosing cases is a fact of NPE life. In the post American Invents Act (AIA) environment, NPEs must achieve a pipeline of quality patents, licenses and disputes to endure. A “portfolio” of risk, if you will. While NPEs may lose more today than in the past — and win less big — the economics of patent enforcement are still viable for those with quality, capital and patience. Public ownership adds pressure to patent licensing companies, and may appeal more to short sellers than value investors. Shorts lose less than investors do.
Vringo won $30M from a jury verdict in 2012, less than the $493M verdict it had sought. The judge overseeing the case ordered Google to pay a running royalty amounting to 1.36 percent of US AdWords sales. Those additional payments could have been more than $200 million annually. Instead, Google appealed.
Was Vringo right to push the litigation envelope or should it (could it?) have taken the money and run?
“Vringo once had a small ‘video ringtone’ business,” writes Joe Mullin in Ars Technica, “but today its value is in its patents. It purchased foundational patents from Lycos, an early search engine, and put them in a holding company it calls I/P Engine.”
Mullin continues: “The result will resonate beyond Vringo’s case. By dismantling two patents from a once-famed search engine on this basis, the majority has sent a message that more Federal Circuit judges are willing to invalidate patents following the results of this year’s most important Supreme Court patent case, Alice v. CLS Bank. That opinion, which was cited in a concurring opinion, said that obvious ideas—especially ones that don’t amount to more than an idea surrounded with computer jargon—shouldn’t get patents.”
The Supreme Court has embarked upon a slippery slope, providing even less clarity about what computer coded inventions are indeed novel and non-obvious.
Request for En Banc Review
Vringo plans to file a petition for an en banc review of the adverse federal appeals court ruling it received last week for its infringement suit against Google, AOL, IAC Search and Media, Gannett Company and Target. Those are not often heard. If the appeal is granted expect the stock to jump. If the appeal is heard, Google may think it prudent to settle, maybe not, given Alice v. CLS Bank.
Vringo (NASDAQ:VRNG) Director Noel Joseph Spiegel acquired 30,000 shares of Vringo stock on the open market in a transaction dated Friday, August 15th. The shares were purchased at an average cost of $0.89 per share, for a total transaction of $26,700.00. Following the completion of the transaction, the director now directly owns 50,000 shares of the company’s stock, valued at approximately $44,500. The purchase was disclosed in a legal filing with the Securities & Exchange Commission, which is available at this link.
Shares of Vringo opened at 1.40 on Wednesday. Vringo has a 1-year low of $0.67 and a 1-year high of $5.45. According to WKRB News and Analysis, “Vringo also was the target of unusually large options trading activity on Monday. Traders bought 7,610 call options on the stock. This represents an increase of approximately 419% compared to the typical volume of 1,465 call options.”
“Vringo also sued Microsoft over its Bing search engine in January 2013,” reports Ars Technica. “Microsoft quickly settled the suit, giving Vringo six additional patents, and agreed to pay Vringo $1 million plus five percent of whatever was won from Google. That final payment now looks like it will be five percent of nothing.”
In 2012 Dallas Mavericks owner Mark Cuban bought a 7.4% stake in Vringo.
Image source: wsj.com