•Court ruling of infringement should increase incentive for ZTE to settle.
•The ruling regarding the validity of the 919 patent should help to increase confidence in Vringo litigation efforts moving forward.
•A potential settlement with ZTE under the terms sheet could bring Vringo over $79 million in cash.
While many investors were presumably busy with Black Friday shopping, Vringo (NASDAQ:VRNG) delivered a piece of good news for investors. Vringo announced that the High Court of Justice in the UK ruled that ZTE infringed upon Vringo's 919 patent. The court, after announcing infringement, set a date for a subsequent hearing as to the remedies that it will impose. Investors will recall that Vringo obtained the 919 patent under its licensing deal with Nokia. This is a positive development for shareholders. The purpose of this article is to update my outlook for Vringo.
Investors will recall that Vringo is engaged in a litigation vs. ZTE in many different courts around the world, and has received favorable rulings in many areas. This infringement finding, with the threat of damages helps to further enhance Vringo's bargaining position. Not only, however, will it enhance Vringo's bargaining position, but the validation of the patents in the UK should help Vringo moving forward if they want to sue another defendant in the UK. Presumably, when Vringo purchased the patent portfolio it has a list of defendants in mind whom Vringo believes are infringing upon the patents it purchased. Having one ruling that the patent is valid should help to make courts in the future in Britain comfortable enforcing the validity of the patent. This ruling of infringement further opens the door for Vringo to bring in a large settlement for its shareholders.
This ruling could help to enhance Vringo's bargaining position in negotiations. Given the terms sheet, which lays out how much money Vringo is seeking to recover from ZTE for infringement, this could be a very lucrative development for investors should it help to bring ZTE to the table. Looking very quickly at the math, a 5% royalty would easily bring the settlement to over $100 million in value. If there is a $100 million settlement, under the terms with Nokia, Vringo would receive the first $22 million, then it would have to pay Nokia a 35% royalty on everything above 22 million, hence Vringo would receive another $57.2 million out of the remaining 88 million, bringing the possible cash to Vringo to about $79.2 million. This development helps to reinforce the idea that Vringo is undervalued relative to where it should be, as any sort of settlement with ZTE near the terms sheet would provide substantial cash for Vringo moving forward.
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