(By Rich Bieglmeier) iStock has been covering the pending patent lawsuit between Google (GOOG) and Vringo Inc. (VRNG). For those of you new to the story, VRNG alleges that Google is infringing on Vringo's patent-protected search technology.
In our latest article, iStock reported that Vringo is seeking an award of at least $696 million from Google. The search giant countered that, at most, the claim should be $200 million less. Either way, VRNG shares would skyrocket on a settlement at either amount.
This morning, suddenly, VRNG shares popped by nearly 35% on an explosion of volume. The reason, District Judge, Raymond Jackson ruled "that Defendants' Motion (Google) for Summary Judgment is denied. It is further ordered that parties engage in settlement discussions before United States Magistrate Judge Lawrence R. Leonard at 10:30 am on Tuesday, October 9, 2012."
That's next Tuesday. Now that the case is headed for Judge Leonard's courtroom in four trading days. If the two parties can't meet on an agreement, then it's off to court on the 16th.
We can't say for sure, but iStock believes Judge Jackson's (sounds like a TV show – doesn't it) decision favors a pre-trial settlement. Both parties have too much to lose, and a key part of running a business is managing risk – especially as a fiduciary of publicly traded companies.
While VRNG is asking for $696 million plus, a jury could award a fatter wad of cash and future royalties. In our initial Vringo story, we wrote "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."
If our math is correct, and based on Vringo's settlement figure, we are definitely in the ballpark, then Google has more downside than upside with a losing verdict. On the other hand, if VRNG is offered a "split the difference" settlement plus ongoing royalties, management could be fighting against its own offer if they turn it down.
The game is now on, as they say. Investors who bought a ticket can sit back and watch the show. If not, a middle-of-the-road settlement puts $10 in play for Vringo. No settlement, and their case goes down the drain, $1.75 or lower could be the final score.
iStock will stay on it and report back to you with any other developments.