Implications Of Google's Earnings For Vringo
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Vringo (VRNG) could turn out to be a very appealing asset to add to the portfolio this summer. Its stock price has increased substantially in 2012 since the merger with I/P engine. This merger put Vringo in position to sue Google (NASDAQ: GOOG) on the basis of willful patent infringement of I/P owner Ken Lang's patents for search engines. This patent is the basis for Google's AdWords and AdSense platforms, which generate upward of 97 percent of Google's current revenue, around $67 billion. The claim also has implications against competitors and customers of Google such as Yahoo! (NASDAQ: YHOO), Microsoft (NASDAQ: MSFT), AOL (NYSE: AOL) and Target (NYSE: TGT). The trial for this claim is set for mid-October of 2012. Vringo will be represented by patent lawyer Donald Stout, a former examiner at the U.S. Patent Office. This is the same lawyer that represented NTP in its patent claim against Research In Motion (RIMM). The verdict awarded NTP $600 million.
The latest dip in Vringo's stock may present an opportunity to invest in this asset before its price begins to increase with the approach of the trial date in mid-fall. Vringo's 52-week range is $0.68 to $5.45. From January 2012 through July 2012 the stock price increased by around 260 percent; most of the price increase was during the time surrounding the initial announcement of the IP Engine merger in mid-March. The stock also showed an increase in activity and price around June 4th, the date of Vringo's Markman hearing against Google, also referred to as a Claim Construction hearing. Mark Cuban actually invested over seven percent in this stock during this time period.
In regards to the terminology that will be used in court to describe the patent, most of the judge's rulings in this hearing will help Vringo. Vringo is looking to collect billions as well as ongoing royalties as a result of the willful infringement. The term "willful infringement" means Vringo may be due triple the damages of a typical infringement case. This term implies that Google knew of the patents and continued regardless of the infringement. Google was aware of Ken Lang's patents from the precedent set in a previous patent case, in which Yahoo! filed claims against Google on behalf of Overture's patents. In the culmination of being appointed Lycos CTO, Ken Lang initially sold his patents to Lycos years ago.
Lycos never pursued the infringement in court because Google was its largest customer, and the enduring litigation would have crippled Lycos financially. Mr. Lang bought the patents back from Lycos in 2011 and formed his new firm, I/P Engine. The merger then put Lang together with Vringo behind Donald Stout's expertise in patents. Stout's success with the NTP patent claims was an integral catalyst in the current demise of Research In Motion. In addition, the district handling the case in October rules for the plaintiff in patent claims around 70 percent of the time.
Vringo is not only looking to collect a significant portion of the $67 billion in revenues, it is looking for ongoing royalties as well. Google's sales have increased 24 percent since the previous year and 39 percent over the past five years. Vringo is also in a position to sue Google's largest customers and chief competitors like Microsoft and AOL that use similar technology. In 1998, Ken Lang filed the patent for classifying how search results and ad results get sorted based on the number of click-thrus an ad gets. Target uses this technology to run its marketing campaigns like many other large firms. Microsoft, AOL and Yahoo! routinely use click ads and search query mechanisms similar to the way Google uses them.
Since going public, Google has made around $67 billion off of this technology. Most large retail firms and search engine companies base the majority of their online marketing and advertising operations on Lang's search query patent. Vringo is in a very advantageous position to collect handsomely either in court or, more likely, in settlements. Either way, it is most probable that Vringo will be able to walk away with large lump sum payments as well as ongoing royalties from several of the largest firms in America that use these types of click-ad campaigns on a routine basis.
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