Vringo could reap a huge windfall from a patent suit, though the outcome is uncertain
--The video-ringtone company is looking to develop new patents from Nokia as its next phase
--It sees a strong pipeline of other possible patent acquisitions
By Ben Fox Rubin Video-ringtone company Vringo Inc. (VRNG) should soon face one of the biggest turning points in its young life as a company as its patent suit against several major technology firms is set for trial in about two months.
But Vringo already is plotting a future after the case--regardless of its outcome--in an effort to avoid being pigeonholed as a one-note company. Chief Executive Andrew Perlman, 34 years old, said his firm plans to expand both its intellectual-property and mobile-technology offerings, looking to use either side of the business to develop the other.
"We really see both the IP side of the business and the technology business going hand-in-hand," Mr. Perlman told Dow Jones Newswires in a recent interview at Vringo's new office in Midtown Manhattan.
The company, founded in Israel in 2006, has undergone a significant transition since the start of the year, when it commanded a market value of about $6.7 million and had a difficult time raising even a small amount of capital. After it agreed in March to merge with private intellectual-property firm Innovate/Protect--which now controls two-thirds of the company--Vringo's market value jumped to around $200 million--with shares recently trading at $3.36. Vringo had to turn down investors during its latest effort to raise funds.
Much of the investor enthusiasm--which includes a major purchase by billionaire Mark Cuban--stems from Innovate/Protect's patent suit, which was filed last September against AOL Inc. (AOL), Google Inc. (GOOG), IAC/InterActiveCorp. (IACI), Gannett Co. (GCI) and Target Corp. (TGT), alleging infringement of two out of eight patents Innovate/Protect acquired from Lycos. The trial is scheduled to start Oct. 16.
The suit alleges Google, the primary defendant, used Innovate/Protect's patented technology to select and position advertising on its Internet-search results. AOL settled a portion of the suit for $100,000. Innovate/Protect, which bought the Lycos patents for $3.2 million, alleges that the technology is widely used in the search industry, creating the possibility for future suits if Vringo succeeds.
Investment banking firm Maxim Group this month estimated Vringo's potential windfall around $924 million. Clifford Weinstein, Vringo's executive vice president, is a former Maxim partner.
The five defendants either declined to comment or didn't respond to a request for comment.
Mr. Perlman said the company is directing significantly more energy toward patents as a way to increase revenue. He pointed to Vringo's $22 million acquisition this month of 432 patents and 75 patent applications from struggling cellphone company Nokia Corp. (NOK, NOK1V.HE) as a "transformational event" for the firm.
The purchase and the Innovate/Protect merger place Vringo in a technology-patent market bristling with lawsuits, ranging from cases between major companies, such as Apple Inc.'s (AAPL) blockbuster litigation against Samsung Electronics Co. (SSNHY, 005930.SE), to asymmetrical fights in which smaller companies sue for damages--and sometimes extract them--from much larger companies, such as VirnetX Holding Corp.'s (VHC) $200 million settlement from Microsoft Corp. (MSFT) in 2010.
Tim Quillin, an analyst with Stephens Inc. who focuses on technology-patent companies, said it is difficult to tell if Vringo will succeed in the patent market.
"There's room for a lot of companies, but it's not easy for any of those companies," said Mr. Quillin, who doesn't cover Vringo.
He said the work creating revenue from patents is time-consuming and rarely assured and companies don't often cough up licensing royalties without first being sued.
Alexander Berger, 29, Innovate/Protect's founder and Vringo's new chief operating officer, said the company is aware of the risks involved but seeks to focus on quality patents to increase its potential for success.
Vringo, which has 27 employees in New York and Israel, currently nets about $100,000 to $200,000 in quarterly revenue from two mobile-phone products, far less than expenses, and it consistently has posted several millions of dollars in losses since going public in June 2010.
The Nokia acquisition expanded Vringo's portfolio from a few dozen patents and patent applications and gives it exposure to wireless infrastructure patents that it plans to license, develop into new mobile products and use for potential litigation. Nokia will receive 35% of revenue from the portfolio after Vringo recoups its initial investment.
Mr. Perlman, a former media and music executive with a background in licensing and technology, said the company currently is focused on the Nokia portfolio but has a strong pipeline of other possible patent acquisitions.
"We think that there's a significant licensing revenue stream and we think there are a handful of patents that are ripe to be asserted," he said of the portfolio.