How, you might ask? It’s simple and summed up in one word. Patents. Thank goodness for patents. Without patents the free market that we know of today would not exist. It’s for this reason that Vringo (VRNG) bought Innovative Protect.
Here it is if you want a little backstory as to how Vringo (VRNG) with a market cap of $189 million could take on Google (GOOG) with a market cap of $218 billion. Recall the age of the dinosaurs when the Internet first came around. Search engines were popping up everywhere and Internet companies were breeding like rabbits.
Along with the tech boom, a guy named Ken Lang filed a patent on how search results and ad results are sorted based on the number of click-thrus an ad receives… Sound familiar? Shortly after, Lycos bought the company that Ken Lang started and he became its CTO.
Then everyone knows what happened at the beginning of 2000. Almost every search engine died and Lycos crumbled. Fast forward today and somehow Lycos has managed to stay alive after being bought by Spanish telecom giant Telefónica and then by a South Korean Telecommunications Company. With Lycos in shambles, Ken Lang bought back his patent for almost nothing and started another company I/P engine otherwise known as Innovative Protect.
Here we are now today. Vringo merged with Innovative Protect and the cat is out of the box. A trial date of October 16 possibly ensues the most threatening case that Google has ever encountered. The patent trial targets Google’s core search algorithm and how it displays ads described here. Now look at Vringo’s suit here against Google. Vringo’s suit is quite lengthy but I agree with James Altucher and I don’t see a difference between the two.
Here’s something else you may or may not have known. Google generates 96-97% of its revenues from search ads. Forget about Chromebooks, Google+, or even Android. Google has yet to get away from search advertising and could be the death of it if they don’t continue to screw over or buy off the little guys like Ken Lang.
Vringo is seeking reasonable royalty fees from Google. Since its inception, Google has brought in $160 billion in revenue. Simple math tells us that they’ve roughly generated $153 billion from ads. The suit only covers US revenue so let’s cut that number to a rough estimate of $65 billion. That’s a lot of cheddar to make royalty payments should Google be on the wrong side. Some people are estimating Vringo is seeking a royalty fee anywhere from 0.5% – 5%. The estimation alone could easily sets Vringo’s valuation anywhere from $6.00 to $68.00.
Google is just the start. Vringo is also suing the likes of Ask.com (IACI), Gannett (GCI), Target (TGT), and AOL (AOL) among others who use Google’s technology. Just when you think Vringo doesn’t have a chance, they’ve done it before. Vringo’s management team with David L. Cohen succeeded against Apple in a patent litigation at Nokia. Plus, Donald E. Stout, Director and Chair, was part of a $612 million settlement with Research in Motion. Finally, there’s another kicker. Vringo has employed the same lawyer that won its suit against Research in Motion.
As a company, Vringo continues to cultivate shareholder value. The company recently finalized the acquisition of Nokia’s foundational wireless infrastructure IP portfolio. The purchase increases its IP portfolio by 15X and strengthens its IP assets with patents ranging from mobility, to search engines, and to digital advertising.
Just like Groundhog Day, you don’t know if the Vringo groundhog will emerge to taste the glory of spring success or if it will shrink back to the cold of winter scrounging around for more financing. The outcome of the settlement on October 16 will either make or break Vringo’s stock. Mark Tuesday October 16 down as another David and Goliath type battle. However, I don’t think Google will let its Goliath head of advertising to be cut off and will likely settle with Vringo David.
We’re in the home stretch now. Billionaire Mark Cuban bought a 7.4% stake of the company after Altucher’s article… check! Offering… check! AOL… check! Earnings… check! October 16… ??? So place your bets boys and girls but know this, my money is on Vringo and has been since Altucher’s Saturday morning March 31 article.
Read more… Why Google Might Be Going to $0 by James Altucher
I’m with you Jason, all the way. You do the hard work, research and study before you ever open your mouth which is why I stick with and recommend your services.
Thank you Beverly! I appreciate your response.
Same here Jason
Cheers Danny, let’s see VRNG take it to GOOG!
Thank you Jason for first introducing me to VRNG. We shall all be cheering in the fall!
So are we seeing this as a long swing/hold or in/out a couple times between now and Oct
I take all trades day by day Brad but if a run starts into October I will consider holding for the actual event, which is likely to be announced before the October 16 date.
Jason have you looked into AOL partical settlement with VRNG? The 100K is what % of AOL revenue from Quigo? That would be great info to add here.
I am in too, VRNG calls October, 20. I love cheddar.
You meant October 20 calls?
No I took the September 22’s for now, not sure this makes it to court.
Really exciting stuff JB, thanks for this article.
Great article, but you really should have worked the term “Googoliath” into that last paragraph. Now THAT would have been cheddar! But seriously, excited to see what happens with this one. You never fail to impress and it’s times like these that I’m glad I subscribed.
Jason l only have one question to you and that is why doesn’t Google just buy out Vringo instead of fighting it out in court. Wouldn’t that be cheaper. Does Goggle know something we don’t. If nothing else the stock will really go up with all the buying pressure being put on it because of comments such as yours and Seeking Alpha.
Morning Branka. VRNG did $12,553,902 in volume Tuesday. My point is there’s big money playing here, despite the $112 million market and for good reason.
VRNG: Good Article. They May be patent Trolls but they are MY patent Trolls
Im lovin jbp. I am already up on VRNG. DO you really think this is going real high? or should we treat it like a swing?
Thanks. I treat all trades like a swing, if I get up on them 10% I assess the situation and consider taking profit… in this case I’d like to make 20% or more with the outside, slim but there, chance of a big score if they were to get a billion out of Google or more.
I took a small stake in VRNG today at 2.97 Thanks Jason!
Good luck Gary.
My bad… I bought ZNGA today…
Nice piece but your market cap is off by about 50%. Always double check the issues before publishing. They have a 186 mil mkt cap at 3.25 a share. I am long VRNG
Thanks Brian, I’ve fixed it since then. Their market cap hasn’t be the easiest to follow of late for obvious reasons, but I appreciate you pointing it out, fixed now.
Thanks for this post Jason. Only question I have, is if this does go to trial is there anything Google can do to delay it? That is my only real concern, with the way this stock seems to be manipulated I am afraid that with a delay they will bring the price down. Thanks again for the post and all you do.
Lots of things can happen between now and then. There is some premium built in but that is all the game… no one knows the outcome. Let me make it clear I’m not expecting it to go to $1-2B, but there’s a chance for sure, however small. Same for $0 outcome too though. It’s just like earnings calls, we buy or sell based on how much we think the stock is mispriced going into the event.
have 500 to gamble ,no margin with scotttrade. rest tied up in sept put on fb…
Will this be enough for 1 day?
The trial wasn’t about coming into the room to make money, it was about seeing if my service is for you by watching how I operate the room.
do you teach how to do the research for ourselves so we can be self sufficient?
Yes Stacy, that’s the foundation of my service.
Should I but now at 4.50?
Jason: I’m up $3500 in 2 days on VRNG after signing up with you! I tried other services but they didn’t do anything good for me. I was about to give up. I am so happy I joined up with you! Keep up the great work!