At first, Google's (GOOG : 744.15, 0.4) team accidentally filed figures that might have included worldwide sales. GOOG resubmitted lower and more accurate numbers later.
Vringo's attorneys argue that it is not their fault the whiz kids at
Google can't add and that the original numbers should stand. It appears
the judge prefers the "correct" numbers, and that's probably why VRNG
gave up close to a dollar on Tuesday.
Let's rewind a bit. In our original VRNG story, iStock dusted off the dusty 10-key calculator and wrote:
"Let's do some math together. The clock for the suit started on
September 15, 2005. Since then, Google has done nearly $160 billion in
revenue. That's roughly $153 billion using Google's 96% of revenue 10Q
figures. The suit only covers US revenue, chopping the number in half,
which means somewhere around $75 billion of Google's sales are subject
to back dated royalty payments, should the tech monster be on the wrong
side of the decision.
Vringo seeks a reasonable royalty payment in the lawsuit. What's a
reasonable royalty fee? That's the billion dollar question. But for our
purposes, we will use 0.5% to a max of 5%; although, we don't feel the
company will hit the 5% jackpot. The calculator says a positive outcome
could range between $375 million and $3.75 billion."
Our figure could be too hot, too cold, or just right, but we believe it
is in the ballpark. Based on Vringo requested settlement of $696
million, it appears the company was shooting for a 1% backdated royalty
fee, putting the revenue subject to judgment a $69 billion.
For those of you following along for the past two months, you'll know
that Google believes $696 million is about $200 million too high. Using
our 1% royalty guesstimate, we come up with $49.6 billion subjected to a
possible settlement – remember, neither figure includes future
royalties through 2016.
It's time for the calculator, again. For the first six months of 2012,
Google generated $21.6 billion in revenue, of which $20.7 billion came
from advertising, and $10.57 billion from the United States. To gauge
what future royalties might look like, we see that 95.8% of revenues
come from the technology in question. Ninety-five point eight percent of
$10.57 billion equals $10.41 billion.
If revenues and percentage remain constant in the next 3.5 years, that's
another $36.43 billion in revenue that could be subjected to royalty
fees. Of course, Google is likely to continue growing. At a 1% royalty
fee, that adds another potential $360 million to the roughly $496
million figure the settlement judge appears to favor.
Add 'em up, and it totals $856 million, and in line with previous
settlements. On August 13th, we noted, "Vringo's management team has
success in previous litigation. David L. Cohen, Special Counsel, won a
$715 million settlement, plus ongoing royalties, for patent infringement
from Apple Inc. (AAPL : 640.75, 3.6) while at Nokia Corporation (NOK :
2.565, -0.12). While at NTP, Donald E. Stout, Director & Chair, was a
part of a $612.5 million settlement with Blackberry."
The number of VRNG shares outstanding seems to change from day-to-day,
but the latest figure according to Motley Fool is 92.3 million shares.
With iStock's $856 million figure, the stock is worth $9.27 in cash per
share. However, if Vringo gets the winning hand, we feel it will trade
at a premium - how much is hard to say.
There is a lot of chatter on the web that Google would be better off
buying Vringo and using the patents to go after others; sort of a game
of patent lawsuit tag – fun stuff. In all likelihood management would
want a premium above cash value, perhaps in the neighborhood of $12.50
to $15 per share.
If the parties cannot reach an agreement, court is scheduled to start on
October 16th. However, we continue to believe a pre-trail settlement is
in the best interest for Google and Vringo. iStock puts it at better
than 50% odds the disagreement will be settled prior to a verdict.