Strategy Of Patent Troll Is Working For Vringo, Inc. (NASDAQ:VRNG)


Vringo, Inc. (NASDAQ:VRNG) describes itself as a company that innovates, develops and monetizes mobile technologies and intellectual property (IP). The company’s portfolio consists of 500 awarded patents and patent applications, which cover mobile, telecom infrastructure and Internet search technologies. Vringo has been able to develop some of its patents in-house, while others have been acquired through third-parties.

The company acquired some 124 patent families from Nokia Corporation (ADR) (NYSE:NOK) in 2012. The patents are related to telecommunications technology.

By taking on technology heavyweights such as Google Inc. (NASDAQ:GOOGL), Vringo has been able to transform itself into a leader in the patent litigation arena. The company’s activities have continued to gain press coverage, especially given its novel strategy in fighting patent violators.

As soon as Vringo, Inc. (NASDAQ:VRNG) closed its patent acquisition deal with Nokia, the company started looking for potential violators of its patents and singled out ZTE.

Battling ZTE

Vringo, Inc. (NASDAQ:VRNG)’s most publicized patent legal battle currently pits it against Chinese telecommunications equipment vendor ZTE. The dispute between Vringo and ZTE revolves around 4G/LTE phones and other 4G/LTE infrastructure devices produced by the latter.

Vringo sues in many countries

Vringo, Inc. (NASDAQ:VRNG)’s strategy in fighting ZTE has taken a unique dimension, and patent owners must be closely watching for the outcome of the patent war between the two companies.

One of the notable strategies that Vringo is using to defend its intellectual property against ZTE is launching a series of lawsuits in many countries around the world. Vringo has succeeded in initiating court battles against ZTE for violating its 4G/LTE technology patent in countries that include the U.K., Germany, Netherlands, France, Romania, Australia, Malaysia, India and Brazil.

According to Vringo’s Chief Legal and IP Officer, David Cohen, numerous courts around the world have agreed with their approach to the patent disputes against ZTE. Particularly, Cohen said their strategy in defending their intellectual property has been found to be in accordance with FRAND principles, while ZTE has fallen short of the same principles.

Use of injunctions

The other strategy that Vringo, Inc. (NASDAQ:VRNG) has successfully used against ZTE is the push for court injunctions. The patent stroll has been able to secure court injunctions in a number of countries to halt the sale of ZTE’s products. Barring the sale of ZTE’s products that bear the disputed technologies is one of the ways that Vringo is using to try and put pressure on the Chinese company to reach an agreement.

Besides seeking court injunctions for the sale of ZTE products, Vringo has also been seeking to enforce or even extend those injunctions, further piling more pressure on ZTE. The company recently paid a 240,000 euros bond in Romania to continue the court injunction on the sale of certain ZTE products in the country. ZTE had sought to have Vringo pay 40 million euros to stay the injunction but Vringo managed to navigate its way out of the potential hurdle.

In Brazil, Vringo, Inc. (NASDAQ:VRNG) paid $900,000 to enforce a court injunction on the sale of certain ZTE mobile and telecom infrastructure devices in the country. The patent stroll has also sought court injunctions in many other jurisdictions, some of which have been granted and others denied.

Vringo strives to make ZTE uncomfortable, speed up deal

Practicing entities are fond of using court injunctions to frustrate rivals that have violated their patents. However, patent strolls usually seek licensing agreements and the use of injunctions is primarily aimed at forcing a reluctant patent violator to agree to a faster settlement talk.

Vringo, Inc. (NASDAQ:VRNG) stands to benefit more from reaching a licensing deal with ZTE than simply stopping the company from selling the products that infringe on its technology.

Companies usually settle patent disputes by reaching a reconciliation, to avoid lengthy and costly legal battles. However, the fight can be long and hard where the patent owner makes, what the licensee considers, outrageous compensation demands.

Revenue in the wrong direction

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Vringo, Inc. (NASDAQ:VRNG)’s revenue has been declining in the recent quarters, while its spending has increased. The company posted revenue of $0.15 million and net losses of $12.38 million or -$0.13 a share in the third quarter of 2014, its most recent quarterly report. It generated $0.80 million of revenue and posted a net loss of $10.05 million or -$0.12 a share in the second quarter 2014.

Capital expenditure

Vringo, Inc. (NASDAQ:VRNG)’s total capital spending in the last four quarters was $1.9 million, with the highest spending in the quarters being $1.44 million in the fourth quarter of 2013. The company spent $250,000 in capital projects in the most recent quarter.

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Although Vringo, Inc. (NASDAQ:VRNG) has not yet succeeded in getting ZTE to agree to a patent settlement, its use of injunctions has clearly shaken ZTE, which should significantly speed up an agreement. It makes much more economic sense for Vringo to reach a royalty agreement with ZTE than barring the sale of the latter’s products. Signing a licensing agreement with ZTE could bring in significant revenue to Vringo, given the global footprint of ZTE in the mobile and telecommunications industry. ZTE’s revenue was up nearly 8%, and profit rose more than 94% last year.


Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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