In 2012, the mobile technology company Vringo (NYSEMKT: VRNG), known for its video and Facetone ringtones, saw its stock spike 200%. But the stock-price jump had more to do with its patent litigation than its mobile apps. Vringo's investors hope its search engine advertising patents bring millions in 2013, but the company's future is anything but certain.
From apps to patents
Vringo creates mobile apps that allow users to change standard ringtones to videos or picture slideshows. Its most popular ringtone, Facetones, has been downloaded over 1 million times since it launched. But lately, Vringo is known more for its courtroom litigation than its apps.
Vringo merged with Innovate/Protect back in March, which acquired the patents from Lycos. The suit sounds like a patent-troll scenario, but as TechCrunch's James Altucher pointed out back in March, the original creator of the patents, Ken Lang, works for I/P and created the ad sorting systems being used by the companies in the suit. So, depending on how you look at it, it may be more of a creator-protecting-his-work story than a company cashing in on some recently purchased patents.
But all that's just the backstory. Vringo's recent lawsuit win makes it an interesting investment opportunity -- or a potential flop.
Vringo unchained
Bullish Vringo investors point to the company's recent court win against Google (NASDAQ: GOOG) as a sign of things to come. The company won a suit against Google, AOL (NYSE: AOL), IAC/Interactive (IAC), and Gannett (GCI) back in November. The main crux of the suit said that Google and the other companies sort Internet search ads based on a system that Vringo's subsidiary, I/P, owns.
Here's how much the jury said each company should pay Vringo in damages:
|
|
AOL |
IAC/Interactive |
Gannet |
|---|---|---|---|
|
$15.8 million |
$7.9 million |
$6.6 million |
$4.3 million |
Source: Reuters
Vringo isn't satisfied with the amounts, though, so it's filing another suit against Google and the others for a future royalty. This means that those companies would be responsible not only for past damages, but would also pay I/P a percentage of future money earned from advertising. The royalty would expire when the patent ends in 2016, or if the companies stop using Vringo's patented technology.
This is why bullish investors claim Vringo's stock could jump this year. If Google loses its appeal on the November ruling, and Vringo succeeds in winning royalties from Google and the other defendants, then the small app maker could receive millions each year.
But a future royalty isn't the only thing bulls are looking at. Now that Vringo's patents have held up in court, the company could go after Microsoft, Yahoo!, and anyone else that uses its technology as well.
Not every scenario looks rosy for Vringo, though. The company could lose its case against Google for future royalties, and the latter could also win its current appeal and not pay a dime in past damages. Even if that doesn't happen, it's possible Google or someone else could buy Vringo and add the company's patents to their own arsenal.
No crystal ball in sight
Vringo is focused on patent litigation, which means its mobile apps come second. With its only significant revenue streams coming from lawsuit rulings, its future and its stock stability depend on how those rulings turn out. That may be part of the reason why Vringo's stock is so volatile. The 200% increase is great for investors who bought early last year, but a ruling against the company, or one resulting in less money than expected, could push the stock, currently at less than $3, down very quickly.
I'm hesitant to be bullish on Vringo because of the companies it's coming up against. Google knows how to fight patent suits, and it has the money and the time to do it. Despite Google losing the November lawsuit, the company paid just a fraction of the $696 million Vringo sought. Future lawsuits could turn out just the same, leaving Vringo with minimal cash gains. But for its stock to really spike, investors will need to see that Vringo can win big money in the courtroom, or at least in settlement.
With the stock price so dependent on court rulings, as opposed to products or services, Vringo seems more like speculation than a solid investment.
