Is Vringo Knocking Out Google?

Jorge is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Vringo (NASDAQ: VRNG), a company engaged in the innovation, development and monetization of mobile technologies and intellectual property, claimed that Google (NASDAQ: GOOG) had infringed on a patent filed by Ken Lang in 1998. In respect thereof, Vringo declared that the patents were at the core of Google's AdWords and AdSense systems, which accounted for nearly 97% of Google's revenue. Vringo is thought to be seeking damages of between $500 million and $1 billion.

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Vringo has received the second blow of its rival Google. On October 31 Vringo provided an update on its wholly-owned subsidiary I/P Engine's case styled I/P Engine vs. AOL et al., which is currently in trial in U.S. District Court, Eastern District of Virginia, Norfolk Division. The company announced that the Court ruled that under the equitable doctrine of laches, damages should be calculated beginning on September 15, 2011, the date that I/P Engine filed its complaint. I/P Engine had previously sought to have such damages calculated from September 15, 2005.

On Friday, the jury of this interesting combat was deliberating on the judgment for several hours. The questions that the jury has to respond are the following:

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1. Does Google infringe at least one claim of at least one patent?

2. Are the infringed claims invalid?

3. How much is Vringo entitled to in damages for Google's infringement of the valid claim?

In my opinion, Google received its first knockdown on Friday. If it had been clear that Google had not infringed the patents, the jury would have surely responded on Friday. This has been an upper cut to Google.

A study titled "A study of juror and jury judgments in civil cases: Deciding liability for punitive damages." By Hastie, Reid; Schkade, David A.; Payne, John W. reached the following conclusion about predeliberation and postdeliberation verdicts:

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This study indicates that Vringo's probability to win is 66%. However, Google's probability to win is only 33%. The undecided percentage is 2%. This study is based on 726 cases.

Yesterday, Vringo announced a verdict in I/P Engine (subsidiary) Vs. AOL, Google et al. The jury unanimously returned a verdict as follows:

  • I/P Engine had proven by a preponderance of the evidence that the Defendants infringed the asserted claims of the Patents.
  • Defendants had not proven by clear and convincing evidence that the asserted claims of the Patents are invalid by anticipation.

After finding that the asserted claims of the Patents were both valid and infringed by Google, the jury found that reasonable royalty damages should be based on a "running royalty," and that the running royalty rate should be 3.5% and the jury found that the following sums of money, Google: $15.8 million,  AOL (Nasdaq: AOL): $7.943 million,  IAC: $6.650 million,  Gannett: $4,322 and Target: $98,833. 

But if we do calculations on compensation proposal on the popular jury, we can find an error in the calculations. The compensation of AOL is calculated on the basis of $22.7 million and if we apply a 35% for past damages, we get $7.942 million. The same thing happens with IAC and the proposal of $6,650 million. It is estimated on the basis of $18.9 million that is a 35%. Gannett is calculated on the basis of $12k and gives a result for a 35% of $4,322 and on Target exactly the same thing. But the compensation proposal to Google, does not follow the same pattern. Google's calculations are performed on revenue of $451.1 million and 35% of that amount is $158 million and not $15.8 million proposed by the jury. These estimates are made to the earnings made by the companies in the U.S. since September, 2011. The calculations of the royalties were made by the jury and for this reason, they think mostly in a percentage of 35% for the past damage according to the calculations made in the judgment. For more information about the complaint you can view the following document.

Now, the judge in the case has the power to do the necessary adjustments on the calculations to fix this error. I think that Vringo could obtain a final judgment close to $1 billion by calculating royalties between future and previous damages. The judge also will determine whether Google can submit an appeal to the ruling.


"A study of juror and jury judgments in civil cases: Deciding liability for punitive damages." By Hastie, Reid; Schkade, David A.; Payne, John W.

Law and Human Behavior, Vol 22(3), Jun 1998, 287-314. Source

Jorge Aura has no positions in the stocks mentioned above. The Motley Fool owns shares of Google. Motley Fool newsletter services recommend Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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