In addition it looks like ZTE planned to short the stock as part of its overall strategy to force VRNG into a lower settlement offer....not an acutal smoking gun but it may not matter to Kaplan.
Attachment 1 (Page 5): (emphasis added)
"Vringo has a relatively low institutional holding ratio and its stock price is more susceptible to fluctuations than the market, as such, this provides room to WORK TO DECREASE THEIR STOCK PRICE, PARTICULARLY AS THEIR INSTITUTIONAL HOLDING RATIO DOES NOT GIVE THEM A CHANCE TO PLACATE THE MARKET WHEN IT IS FALLING".
Thanks again to VRNG24. Disclosure I am long VRNG.
We no longer have to guess what the "big" global licensing number was because it is now disclosed in Exhibit J.
Exhibit J (Page1). "The objective of Vringo in initiating these lawsuits is to force and threaten our company into accepting the patent licensing price of $817 million USD, the patents involved are the field of wireless and terminals".
I agree, if you follow their ZTE logic (only in terms of Guo) you do end up close to the same place as VRNG motions in August.
It's like telling a judge "I did rob the bank, you are right your honor. But listen .... I gave back most of the money after they caught me (I think) and from this point on I promise to co-operate with the bank I stole money from in prosecuting myself but your honor I may need to spend a little more money until October 15th (just to get my affairs in order). However I promise not to use the same money I stole or at least as far as my countries laws are concerned ... we have done nothing wrong ... we are the good guys!!! .... why are you smiling at me your honor!!!!!!
Guys, even a CAFC or rule 37B argument is non-sensical in this case and Kaplan can shut down ZTE's business while we wait or at least make it very painful for them to continue. It just makes no sense .... this is a stupid FRAND license deal ... if they are not careful it will turn into a buyout and very damage their ability to business in the USA.
Actually there are a lot of really smart Chinese engineers (many working in the valley) - I agree that none of them work in ZTE's legal department!
I do agree with you, many Chinese Corporations do not respect the United States IP as compared to the Aussies \ Western Europeans \ India. However we see our own corporations (i.e Apple, Google, IBM, Intel) not respecting the intellectual property of our own small inventors. Not because they do not respect IP (they are the biggest patent filers of all of us) but worse - because they know they can win a resources war.
This approach is unethical and morally suspect but nothing changes that legal strategy because it is still cost effective until something big happens to send a message that using this strategy could backfire - especially if they "knowingly infringed" on real patents - lets all hope Kaplan and SCOTUS decide to send that message. Overall it makes you really think about the legal professions and the politicians born from that cauldron of deceitfulness.
Disagree ... ZTE response is up so you can read it if full yourself, nothing misleading about my post and I disclosed that I am long the stock.
Listen, I could have been worse on ZTE here are some direct excerpts from ZTE document (this is NOT A VRNG filing this is from ZTE attorneys) .... so if you don't think ZTE are admitting their mistakes and looking for mercy based on the interpretation of Rule 37b then I really don't know what to tell you but I would not be holding short way too risky now ...
"ZTE has been unable to comply with the Court's orders regarding the deposition of Guo
Xiaoming ("Mr. Guo") and the production of documents from more than 100 ZTE custodians".
"The Court has already determined that ZTE breached the NDA by attaching the 40-page
presentation to an anti-monopoly complaint filed by ZTE in Shenzhen, China in February 2014."
"In addition, several other disclosures of NDA-protected information have taken place.
The disclosures, however, have not been identical. In some instances, the entire 40-page
presentation has been disclosed. This happened when ZTE filed its anti-monopoly complaint in Shenzhen and also when ZTE filed a complaint with China's National Development and Reform Commission in April 2014. In others, only the opening settlement offer from the 40-page presentation—a dollar amount—was disclosed. This number was disclosed to Margaret Wang of GOOGLE when ZTE forwarded a draft of ZTE's NDRC complaint to her in April 2014." -- I love that one!!!!.
"The number also was included in internal reports on the Vringo dispute distributed within ZTE, one of which was forwarded to Mark Lee of Edelman, a PR firm used by ZTE, in August 2014. " -- The PR Firm - pricless !!!!
ZTE have on multiple occasion asserted that they are the reasonable ones and it is VRNG who are not reasonable with their outrageous rack rate high pricing. While we do not know the big number we do know this from the documents and especially Exhibit B....
ZTE Argument .....
" Vringo has not established that testimony from Mr. Guo would be central to any claim or defense in either the NDA case or the FRAND case.2 There is evidence that Mr. Guo gave his approval to certain legal and public relations countermeasures against Vringo (countering the litigation and public relations measures taken by Vringo). (See Ex. B.) These countermeasures, however, were developed and implemented by subordinate executives—including Shen Jianfeng, Shen Nan and Hu Yi—who have appeared for depositions in New York. The countermeasures were also the subject of a corporate representative deposition pursuant to Rule 30(b)(6). (See Ex. C.) Vringo offers no reason to believe that information about these countermeasures—let alone
"case dispositive" information—is missing from the case because Mr. Guo has not appeared for a deposition.
OK, they are still downplaying Mr. Guo but the reference to Exhibit B is where it gets interesting and I hope VRNG will use this in damages...
EXHIBIT B Excerpt from ZTE emails ....
" Beginning of 2013, Vringo, through their English lawyer, made an application to the English court to make a
judgment authorizing them to make an offer to our company for a global license in accordance with the payment terms of$2.5 USD per smart phone; $1.2 USD per sub-module; and 1.5% of revenue for systems".
Typical FRAND rate are from .5% to 1.5% on standards based systems. The per device charges if you use the sum of the parts calculation on a $300 smart phone device come in right at the same levels.5% ~1.25%. The AXON is $450 so less there. Seems close enough to FRAND rates - wonder if Kaplan will agree?
Once again thanks to VRNG24 for the all the great info. Disclosure I am long VRNG.
The ZTE response is in on PACER and predictably they have asked the court for mercy. They admit that they are in breach of the courts orders and violated the terms of the NDA with disclosure to multiple 3rd parties. They propose their own low ball sanctions.
ZTE main argument is that VRNG seeks sanctions that are not in line with the damages they caused (under rule 37b). They propose paying for all courts costs, attorneys fees and precluding themselves from introducing evidence during the future trial related to the breach.
It is a poor argument but really the only one left but rule 37 is complex and gives a lot of discretion to the district court as long as there is a claim and the evidence (facts) supports the claim. Unfortunately (for ZTE) that bullet left the gun when they refused to produce Guo in SDNY. Again, in this document, they try to make him less relevant with the argument that he was so senior he had no idea what was really going on. The fact (his own emails) dispute this especially with the Chinese government suit. Kaplan will never buy it and I think he basically told this to ZTE when he warned them what may happen if Guo violates his order again - which ZTE then did.
ZTE ... "We respectfully submit, however, that the sanctions proposed by Vringo—default judgment in the
NDA case as well as dismissal and default judgment in the FRAND case—would not be appropriate"
Kaplan ... "VRNG already told us they would seek litigation ending sanctions, what did u expect"
ZTE ... "But we promise to produce everything they need now, give us till Oct 15th, we have new lawyers we are good guys!!"
Kaplan ... "I told you twice to produce Guo?"
ZTE ... "But he does not want to come and firing him will not help!!!!"
Kaplan ... "Have you tried?"
ZTE ... "Well no"
Kaplan ... "onto the damages phase, VRNG do you have anything to share"
VRNG ... "Lets talk FRAND"
By agreement I mean, ZTE know they lost the case and will take their chances with Kaplan (not agreement on licensing) - did not mean to mislead, apologies.
I am not sure about Worldwide (there are many countries we are not in yet). There are references to the English settlement discussed in the Exhibits but they all failed on unit price.
Obviously VRNG would want to get a global license done but that is very difficult and maybe not even practical (at this time but that is still the goal). The SDNY and NDA will definitely give them more leverage for a licensing framework based on one because they can make a valid argument - ZTE has leaked the rack rates to Google and other etc so now they will be forced into a lessor negotiating position with future licensees.
Damages phase will come next.
Argh! missed this exhibit completely - Exhibit K. Page 3 - this one is self explanatory ... (internal ZTE communication when they were preparing their suit).
"In addition, for the purpose of catching the attention from the government, it is suggested to add one paragraph at the end to extend to the impact on China. The fact that most other Chinese enterprises have not obtained the relevant patent authorization from Vringo too may be described. ZTE may well be the first target of Vringo. In the event that ZTE is intimidated into paying the fee, Vringo may probably use the similar ways to force other Enterprises to pay a heavy license fee".
Forgot to add:
The exhibits are also a telling read into ZTE strategy. It is clear ZTE concern grows as the individuals cases continue progress in VRNG favor. Statements like "this case is getting worse and worse", mitigate risk of "large damages", "systematic co-ordinated responses", analysis of VRNG financial documents, strategy for stock etc etc.
My personal favorite ....
"It is as our face -to -face discussion of last week. In principle, I agree that we take various means to force VRINGO and NOKIA into submission. At the same time, we need to make an appointment with Yu Chunhui, a judge of Intermediate People's Court, to discuss whether the ruling is appropriate under current environment.
In addition, among several patents of Vringo involved in lawsuits, there are a limited number of lethal lawsuits (in 7 cases, 3 cases initially identified as knotty ones). We will consider it in the subsequent comprehensive assessment."
Disclosure: I am long VRNG.
Thanks again to VRNG24 for great information. Doc 256 is an impactful document that leaves the reader with very little choice as to the final outcome. We can't see all the redacted stuff but you can read between the lines and footnotes etc and get the gist of it. Some thoughts....
1) ZTE leadership really is incompetent. They are basing their LEGAL strategy on the "Art of War". While the The Art of War is a great book, it should not be taken literally, especially during a FRAND negotiation. Sadly ZTE Executives forgot one of the books biggest themes - "Be moral and ethical in all things" and instead focused on "surprise tactics" and "make war to make peace". These type of tactics only work with unsophisticated actors not NPE's or PAE's whose entire team is not only experienced but are disciplined and executing a strategy not launching random lawsuits.
2) ZTE are arrogant. Their own U.S. Subsidiary predicated this result back in April, it's now September, how much more evidence would you like to conceal, how much bigger do you want to dig the hole with the Judge? At some point you admit your mistakes and stop digging!
3) ZTE have no believable defense for their behavior and will be sanctioned (the evidence is overwhelming ad easy to gauge their real intent). VRNG can't ask for damages yet (they will after we hear back from Kaplan) but ZTE best options now is to make sincere apologies to the court, fire their involved executives and hope the Court is lenient during damages phase.
Obviously no one can predict what a judge or appeals court does (as we saw in the Google case) but make no mistake this lawsuit is not about obviousness or patentability, this case is about FRAND and forcing Chinese Corporations to respect ALL Intellectual Property, as they do their own.
Rule 37 - Section b Part 2.
(2) Sanctions Sought in the District Where the Action Is Pending.
(A) For Not Obeying a Discovery Order. If a party or a party's officer, director, or managing agent—or a witness designated under Rule 30(b)(6) or 31(a)(4)—fails to obey an order to provide or permit discovery, including an order under Rule 26(f), 35, or 37(a), the court where the action is pending may issue further just orders. They may include the following:
(i) directing that the matters embraced in the order or other designated facts be taken as established for purposes of the action, as the prevailing party claims;
(ii) prohibiting the disobedient party from supporting or opposing designated claims or defenses, or from introducing designated matters in evidence;
(iii) striking pleadings in whole or in part;
(iv) staying further proceedings until the order is obeyed;
(v) dismissing the action or proceeding in whole or in part;
(vi) rendering a default judgment against the disobedient party; or
(vii) treating as contempt of court the failure to obey any order except an order to submit to a physical or mental examination.
Disclosure: I am long and adding to my position based on publicly available information related to the ZTE case.
Latest Doc 231 gives us more confirmation.
ZTE has refused to comply with both courts orders on Mr. Guo. This in now confirmed to VRNG and VRNG confirmed to the court today. ZTE letter is one sentence.
"With reference to the Memorandum Opinion dated August 11th 2015, I am writing to confirm that ZTE is unable to make Mr. Guo available for a deposition in New York".
The next step is VRNG will file for "case dispositive sanctions" under Rules 35 and 37 and the court will find ZTE to be in contempt. I believe VRNG will seek a summary judgement because they mention again to Judge Kaplan they are still having "discovery problems" in the other cases. See my post on this earlier today from the K&S firm. All of sudden no one has any files about VRNG on their hard drives ... no one is buying it and hopefully the other courts are taking notice of this almost criminal behavior by ZTE.
ZTE may be done doing business in the USA that's billion of dollars folks. What a mess over a FRAND license!!! ZTE should be embarrassed with their behavior and their "war to make peace strategy" ... did not work in this country nor will it work in others.
Hope this helps...
NDA is a reference to the breach of the Non Disclosure Agreement.
SDNY - Southern District of NY is the court where the NDA case is right now.
Disclosure: I am long and adding to my position everyday based on publicly available information related to the ZTE lawsuit. Thanks to VRNG24 for being so generous with his/her time ....
Position: ZTE had claimed that Mr. Guo "did not have any material role" in any issues related to the breach of the NDA and as such should not be disposed. The argument ZTE SNDY team was making was Mr. Guo is a very senior executive and these types of issues were handled by people beneath him.
and now we learn the truth....
Mr Guo's email was searched using the search term "Vringo" and it yielded 1,037 documents results of which 98 email documents and 22 file attachments were deemed responsive to the VRNG motion on the NDA. This is NOT VRNG saying this, to be clear this is ZTE new outside counsel (Clifford Chance) saying that not only was Mr. Guo aware of the NDA issue but he 98 emails and 22 document attachment that VRNG will now get to review. Of the 1,037 documents, a sample of 120 document were deemed responsive and 912 deemed non-responsive. Of the 120 deemed responsive, more than 500 PAGES of evidence were produced. Mr. Guo did have a material role he was the center.
It gets worse ....
The K&S attorneys (initial law firm) interviewed 15 ZTE custodians by phone regarding potentially relevant hard copy files or electronic files stored on their computers, NONE of the employee interviewed has thus far identified ANY relevant files stored anywhere. Guys it's a simple cover-up, "turn the shredding machines" ... this will not go over well in SNDY.
Mr. Guo was obviously in the thick of the NDA breach and ZTE PLAINLY lied to the court. This should serve as a warning to anyone who wants to business with ZTE. This companies executives can't be trusted to operate in a righteous legal way. Mr Guo obviously knew that he was in breach AND he is the Chief Legal Officer!!!!! Mr. Guo still works for ZTE, this is shameful. I hope large telecom all over the world is watching.
Disclosure: (I am long VRNG and have been adding to my position over the last few days). Thanks to VRNG24.
Latest motion is out. VRNG making an effort to box ZTE in on their own essential patents licensing agreement to establish a FRAND rate. (I think ZTE is 1%). The strategy ... establish global FRAND rates from ZTE perspective and then show how they were disingenuous in their negotiations.