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Wednesday, October 24, 2012

$VRNG $GOOG Update on Order 700 & Explanation

738 ORDER denying 700 Motion for Reconsideration per ruling on October 16, 2012. Signed by District Judge Raymond A. Jackson on October 23, 2012. (Entered: 10/23/2012)

"In a way, this is similar to the situation Apple found itself in with VHC. Apple could produce their software engineer, Allie, for the deposition that they knew would be damaging or face jury instructions that would allow the jury's imagination to run wild. Apple was faced with deciding whether or not to admit guilt through the deposition (and not cross examine) or allow the jury to decide for themselves. Here, GOOG decided to ignore the judge's previous ruling (a BIG no-no) on a matter previously argued only to have the judge then say to the jury: "Google is obviously wanting you to a) not conclude that its infringment is worth as much as I/P thinks it is, and b) not have a full picture of its revenue to conclude what the infringment is worth." There is no way for the jury to discerne that instruction as anything other than the judge heavily implying that he has concluded infringment has occurred. The only question is the value. 

There is a downside to that, though, which is since the jury is not allowed to use the Disney model as an alternate value method (judge told them so) and if they don't believe the I/P expert, the alternative value method they have is GOOG's original thesis: what VRNG paid for the patents. Now, there are good arguments that neither the buyer nor seller in that situation knew how much revenue GOOG had generated from those patents, but the delta between $6MM and $493MM is nearly binary in its nature. We'd rather have a defined range and split the baby. 

That said, if we choose the median here and use VHC as an example we could look at $245MM infringment judgment and a post-trial settlement at approx. $400MM (i.e. about the percentage increase that MSFT paid). That's about $4 per share before taxes and other costs. Would that cause VRNG to pay out a special dividend, like VHC did? Maybe. Even if it didn't, valuing the business at $3-5 a share would not be appropriate. Neither would $30. But I'd be happy with splitting the baby with that delta, too."

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