(By Mani) The patent infringement lawsuit between Vringo Inc. (NASDAQ:VRNG) and Google Inc. (NASDAQ:GOOG) has become a hot topic on Wall Street, catapulting Vringo shares by 424 percent year-to-date.
Meanwhile, Oct.16 could be an important day for Vringo because that's when the patent infringement claim against search giant Google is expected to go to trial.
Google could settle with a discounted lump sum payment for future royalties since the authenticity of the claims was already evident after AOL (NYSE:AOL) partially settled with Vringo, which claims its patented technology is responsible for more than 95 percent of Google's revenue. Vringo seeks an award of at least $696 million from Google. The search giant countered that, at most, the claim should be $200 million less.
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On the other hand, Google may try another option. It could acquire Vringo to boost its intellectual property. Vringo's intellectual property portfolio consists of over 500 patents and patent applications covering telecom infrastructure, internet search, and mobile technologies. The patents and patent applications have been developed internally, and acquired from Lycos, Inc. and Nokia Corp. (NYSE:NOK).
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In the long-run, some major player could definitely try to buy Vringo. Chinese telecom equipment maker ZTE, which is also facing a new lawsuit from Vringo, is touted as a possible suitor.
Google cannot let such a huge patent asset go off its hook. Moreover, Vringo's patents are valuable to Google's search business and mobile strategy, while immensely boosting its Android ecosystem.
Vringo's acquirer would benefit from its patent portfolio, which could be used against competitors. The acquirer could wage a courtroom war and let the purchase pay for itself in the form of awards.
With more than $40 billion in cash, it would not be a huge task for Google to buy Vring, which has a market cap of just $160 million.
If Google acquires Vringo, it could mobilize huge revenues in the form of subscriptions as Vringo operates popular mobile social applications and services including Facetones and Video Ringtones. Facetones application creates an automated video slideshow using friends' photos from social media web sites, primarily from Facebook (NASDAQ:FB). Meanwhile, the video ringtones application allows users to create or take video, images and slideshows from virtually anywhere and turn it into their visual call signature.
During the second quarter, the Facetones free ad supported version has more than a 1 million downloads and generates more than 3.8 million requests in mobile ad inventory on a weekly basis.
"We expect Facenotes revenue of $0.420, $1.7 and $3.4 million for 2012, 2013 and 2014, respectively," ViewTrade Research analyst Peter D'Agostino said.
Vringo is poised for growth as the demand for smart phones and mobile social media continue to increase. In 2011, there were 5 billion mobile subscribers globally and that is expected to grow to 9 billion in 2017. According to Juniper Research, the mobile social networking market is expected to reach $11.8 billion in 2013.
In recent years, Vringo has partnered with mobile carriers and service providers. Mobile users pay a monthly fee to subscribe to the service, and Vringo receives the majority of the revenue split with its partners.
Vringo has successfully teamed up with partners in several different geographic markets including Celcom (Malaysia) and Etisalat (United Arab Emirates). In the future, Vringo plans to increase its global video ringtone partnerships with a focus on the lucrative markets in Europe and North America. As of mid-August 2012, Vringo reports there are 227,000 paid mobile video ringtone subscribers.
Vringo's lawsuit against Google centers on two of the acquired Lycos patents over Internet search and advertising, which is the primary source of Google's revenue. Vringo had acquired those patents via a merger with Innovate/Protect.
"We would expect VRNG to receive a 0.75 percent royalty payment or $500 million payment for the trailing years and at least $100 million annually through 2016," D'Agostino wrote in a note to clients.
Notably, Vringo holds the upper hand in the dispute as a district judge denied Google's motion for summary judgment in the patent dispute. The judge ruled that summary judgment would be inappropriate as there are genuine issues of material fact in dispute.
"We contend that this ruling only strengthens VRNG's patent infringement claim against Google with the trial commencing on October 16, 2012, in our opinion," D'Agostino noted.