VRNG: An impressive run so far.

Vringo (VRNG) has been the fortunate recipient of some very interesting news over the past few days. First the judge ruled that Google's workaround is not really a workaround and that they still owe Vringo royalties. The second and possibly bigger ruling came when the judge even enhanced the royalty rate to 6.5% of the royalty base of Google's US revenues. This could be an interesting stock to watch and expect a Seeking Alpha article out later on Vringo's recent developments. 

Worlds Responds to Motion for Summary Judgement

Worlds (WDDD.OB) investors saw a rather substantial decrease in share price drop over the last few weeks. The main events that occurred were a motion for invalidity filed by Activision (ATVI), as well as a press release announcing that a crucial markman hearing has been postponed through the fault of neither party. Neither of these issues are material in affecting World's chances to prevail in its lawsuit.

The Drop in Price

The aforementioned motion helped to cause a substantial drop in share price, as investors began to panic over the possibility that the judge would dismiss the patent suit outright. This motion mentioned the problem that the priority date of the parent patent do not extend to all of the patents in suit due to the fact that the patents in suit did not contain a specific reference to the earlier filed application. This is a problem due to the fact that World's own inventions would have then counted as prior art and subsequently served as a basis to invalidate the rest of the patents. The priority date, November 13, 1995, of the parent patent helps to invalidate these concerns as its priority date is within a year of the inventions being available to the public.

If it were found by the court that these patents did not have the required specification, it was possible that the court would essentially destroy Worlds case. The court would have been able to declare the patents invalid. However, I do not believe that this will be the case and I believe that the court will deny Activision's motion.

The Response

Worlds (WDDD) attorneys come out firing in regards to Activision Blizzard's motion. Obviously, Worlds does not see the issue in nearly the same way and declares that the omission was a scriveners error, and therefore is an error that should be overlooked by and corrected by the court. There are a few very important points raised by Worlds in their response. These points can be broken down as follows: 1. The scriveners' error should be overlooked by the court, and should be corrected by the court. 2. The US Patent and Trademark Office (USPTO) in their public system recognizes the priority date of November 13, 1995. 3. Worlds is seeking a certification of the mistake from the USPTO and is asking the USPTO to correct the error. 4. Activision Blizzard misstates the legal precedent and the legal provisions surrounding the scenario.

It is important to note that in a motion for summary judgment the burden will lie with Activision to prove through clear and convincing evidence that the patents are invalid. The evidence must be viewed in a light that is most favorable to the plaintiff in this scenario. Therefore, Activision would have to surpass a significant hurdle in order to actually have their motion granted. So now without further ado we will look at each of the afforementioned defenses.

1. Scriveners' error

From page 6 of the motion:

"First, the patents-in-suit are entitled to a November 13, 1995 priority date because Worlds properly claimed entitlement to that effective filng date during prosecution of the '045 and '690 patents, Under 35 U.S.C. $$ 119(e) andl20,and37 C.F.R. $ 1.78, apatentee may claim priority to an earlier-filed application by including priorityinformation in its patent application. See E.I. du Pont de Nemours & Co. v. MacDermidPrinting, 525 F.3d 1353 (Fed. Cir. 2008). By referring to Worlds' 1995 provisionalapplication in data sheets filed during prosecution of the '045 and '690 patents, Worldssatisfied this requirement and is entitled to the November 13,1995 effective filing date."

Essentially, Worlds did everything right in regards to the data sheet when it was filing for the subsequent patents. Worlds argues that it should not be harmed by a scriveners' error at the USPTO. This argument is rather convincing, and there is a large amount of caselaw to support the position that Worlds did nothing wrong in regards to the patents.

Another interesting quote from the response was:

"Under Federal Circuit law, "[a]bsent evidence of culpability or intent to deceiveby delaying formal correction, a patent should not be invalidated based on an obviousadministrative error." Hoffer v, Microsoft Corp.,405 F.3d 1326,1331 (Fed. Cir. 2005).Indeed, "[w]hen a harmless error in apatent is not subject to reasonable debate, it can becorrected by the court . . . ." Id. Here, there can be no dispute that (1) any effors in the'045 and '690 patents were harmless and administrative; (2) setting aside any administrative error, the correct effective priority date of the patents-in-suit is November13, 1995; (3) the PTO has already recognized the correct November 13, 1995 effectivefiling date on its PAIR database and website; and (4) there is no evidence of culpabilityor intent on the part of Worlds to delay formal correction. Accordingly, the Court has nobasis to invalidate any of Worlds' patents.:

In the motion filed by Activision, they failed to assert any wrongdoing by Worlds that would prove the intent to decive. The fact that Actavision failed to make an allegation that Worlds intended to deceive also points to the fact that it was a harmless administrative error that is causing the holdup. Interestingly, the court has the opportunity to even correct the error and dismiss Activision's motion. I expect for the court to decide to just correct what is very clearly an administrative error. Worlds was correct in the way it filed for the patent, because the USPTO messed up when they issued the patent that is not the fault of Worlds and Worlds should not be liable.

2. The USPTO recognizes the effective date of November 13,1995

Activision's argument loses even more steam when we come to the fact that even the USPTO recognizes the effective date of November 13, 1995. The USPTO, according to Worlds, accepts this on both their PAIR database and website. The fact that even the USPTO recognizes Worlds claim will help Worlds in its argument that there was simply an administrative error in regards to the patents in suit.

3. Worlds is in the process of seeking an acknowledgment of the mistake

On July 5th of this year, Worlds filed for a Certificate of Correction in regards to the '045 patent and the '690 patent. This would of course constitute a formal acknowledgement by the USPTO that the effective date should be November 13, 1995 as Worlds claims. This would of course render Activision's argument moot before the court as the issue will have been deemed for all intents and purposes to be corrected. Note that this is an extra step for Worlds, they have the judge who has the possibility to rectify the mistake and now the USPTO who could simply issue the Certificate of Correction which would render the argument moot.

4. Activision Blizzard misstates the law

Even more compelling in its argument is the fact that Activision Blizzard relied on an old interpretation which has recently been updated. In its argument, Activision Blizzard asserted that the 1996 version of 37 C.F.R. 1.7 applied. This is, as Worlds points out, simply wrong and contrary to the policies in place at the USPTO. Activision Blizzard needed to rely upon the 2000 updated version of the policy. Although the patent had an effective date of November 13, 1995 the USPTO regulations for applications filed before November 29, 2000 the 2000 revision is the one that should be used. In the case of both of the patents in question, the dates that the applications were filed precedes the November 29, 2000 cutoff date and as such Activision Blizzard even used the wrong version of the procedures as a focal point of its memorandum.

Conclusion

This motion should help to ease investor concerns that the patents will end up being invalidated. It appears as though Activision's motion will be denied by the judge. Worlds raised many good points that Activision will have to disprove through clear and convincing evidence. In this instance, Worlds has the evidence on its side. As such Worlds should easily win this motion, and investors should see an increase in share price due to the fact that the patents are not even close to being invalidated before the Markman hearing. The next important catalyst to watch for Worlds will be the Markman hearing, in which the court will rule on a few claim construction issues.

Neonode: A Potential Patent Play?

Neonode (NEON) has a very well developed business. They have been on a role recently, providing solutions for many large companies. With Neonode creeping ever closer towards profitability, it seems as though Neonode is well positioned as a company. However, there is the possibility that they would become even more well positioned, through the exploitation of their patent portfolio. Neonode holds some seminal patents, which could provide a very lucrative stream of revenue, should Neonode choose to start focusing on enforcement activities. To be clear, we are not talking about destroying the underlying business at Neonode, but simply choosing to essentially add an IP enforcement wing onto the current business model.

A very interesting development has been the fact that Neonode patented slide to unlock technology...three years before Apple (APPL). The fact that Neonode also commercially deployed this technology would only serve to strengthen the claims in Neonode's enforcement activities. For those of you who are unfamiliar with the patent litigation arena, let's take a step back. Neonode's patent would have priority over Apple's, as Neonode's is older and therefore the assumption is that Neonode had the idea before Apple. Even more interesting is the idea that a court in the UK in 2011 declared Apple's slide to unlock technology invalid, citing Neonode's 2004 phone which deployed slide to unlock technology. This would also mean that Apple knew about Neonode's invention, as they are now aware that Neonode deployed a similar device before Apple. As a matter of fact in Apple's recent patent application for slide to unlock technology they cited Neonode's patent. This is also important because that would mean that Apple was well aware of the issuance of Neonode's patent.This could open Apple up to the status of willful infringer under the law, which would substantially increase damages should a verdict come in against Apple. In February of 2012, Neonode was issued their patent. They were issued this patent, having initially filed for the patent in 2002, well in advance of Apple. This would make the patent relatively recent, which is always good in the field of IP litigation. The more recently the patent was issued, the longer until the expiration of the patent. Now, why would anyone care about the expiration date of a patent, well the answer is due to future royalties. Should Neonode sue they would undoubtedly seek future royalties for Apple's continued infringement. This would mean that Apple would either have to change their technology, or continue to pay Neonode a set royalty on sales until the expiration of Neonode's patent.

More significantly, Neonode has the pieces lined up for a potential IP litigation front. In their conference call they mentioned that "our Patent Counsel, Quinn Emanuel is in the later stages of independently evaluating our patents and helping us developing our IP strategy." This would suggest that Neonode is also seeing the value in the IP litigation front. Also of note is the fact that Quinn Emanuel is representing Neonode, Quinn Emanuel is a tier one lawfirm in patent litigation. What is even more compelling is that Quinn Emanuel advertises itself as trial lawyers, so why would a bunch of trial lawyers be coming together at Neonode? The logical conclusion is that Neonode is getting its proverbial ducks in a row to sue someone. Who we cannot really be sure, however, they have a large patent portfolio protecting their underlying technology platform. With lawyers like Quinn Emanuel working for Neonode, it is safe to expect that Neonode will soon be attempting to monetize some of their IP portfolio, as they should.

What makes Neonode an even more compelling IP investment is the fact that Neonode has a strong underlying business. This is very valued in the world of patent monetization, for examples look at the underlying businesses at Document Security (DSS) or the creation of one at MGT Capital (MGT.OB). This would help to provide a sort of cushion should Neondoe not be successful in its patent monetization case. It would essentially provide a base valuation, a luxury not present at some other monetization companies such as Vringo (VRNG). Furthermore, Neonode could be very successful as Quinn Emanuel claims to have a win rate of over 90%, odds like this have to be attractive to any investor in the monetization industry. Neonode is clearly very well positioned should it want to monetize its patents, to go along with its underlying business.

Neonode already has a very successful underlying business, and would be able to branch off into also licensing its IP portfolio. It is interesting, as the amount of IP related lawsuits seems to be soaring in the United States recently. Neonode could be experimenting with possibly shifting towards filing patent infringement lawsuits.

Document Security Systems: The Importance of a Settlement with Jive Software and Broadvision

Document Security Systems (DSS) has been on a tear of press releases over the past month. For a quick background, Bascom Research is a wholly owned subsidiary of Lexington Technology group. Lexington Technology has entered into a definitive merger agreement with Document. Bascom Research filed a patent infringement lawsuit versus Facebook (FB), LinkedIn (LNKD), Jive Software (JIVE), Broadvision (BVSN) and Novell. This patent infringement lawsuit has been the center of a few recent press releases by Document Security, announcing settlement agreements with Defendants. These settlement agreements are sure to be good for investors in Document.
Document Security Systems announced that their soon to be subsidiary, Lexington Technology Group, settled with a Defendant in the Bascom Patent case. Unfortunately, the press release did not state which Defendant the settlement was with. The settlement granted an effective 4% royalty rate, per the press release. This settlement is with Broadvision. Although not stated in the press release, this can easily be found through a court filing available here. The settlement with Broadvision will likely provide only minimal revenue.
As of March 28th, Broadvision was listed with a market cap of $41.93 million. While the settlement grants an effective 4% royalty rate, keep in mind that this royalty rate applies only to a certain product from Broadvision, its Clearvale products. It is unclear how much of Broadvision's revenue is derived from its Clearvale products, but the product did not have any revenue in 2011, and likely did not bring in a large amount of revenue in 2012. This being said, Broadvision does seem to be scaling up its Clearvale products platform, saying in its most recent conference call discussing earnings that:
In this release, we enhance Clearvale's ability to control distribution and display of view only documents. Extend our integration capabilities with Microsoft SharePoint, and added many other security features required by our enterprise customers.
The enhanced Clearvale capabilities will also be added to our BroadVision 9 solution, announced last quarter to offer a unified and integrated engagement solutions based on Clearvale's social and mobile capabilities, and [K2 e-business] or relationship management platform, which is BroadVision's personalization and transaction management solution.
The fact that Broadvision is enhancing Clearvale can only benefit Lexington Technology and DSS, as thanks to the effective 4% royalty rate, the more sales that Broadvision obtains, the more money that DSS/Lexington will ultimately receive.
Also from the same conference call is a hint at the sales of the Clearvale product so far:
At BroadVision, we invest, create greater choices and options for our valued customers. In Q1, we did 25 Clearvale partner and paid customer transactions
Accoring to the conference call, Broadvision believes the bookings may provide significant upside in the future. With this in mind, and the fact that Broadvision according to recent quarterly filings does appear to be unprofitable, having posted a net loss of $2.1 million in the first quarter of this year. The revenue appears to be minimal out of the Clearvale product suite, and therefore seems to be minimal revenue to Lexington/ DSS. However, in the world of patent litigation or in any world money helps, so this revenue to Lexington, no matter how minimal, should help to offset some of the litigation costs with Novell, Facebook and LinkedIn.
On top of that, Lexington recently announced a settlement with asecond Defendant in the Bascom Patent case. This settlement provides for Lexington to receive an effective royalty rate of approximately 5%. This settlement appears to be with Jive Software, according to arecent court filing. Of the two, it seems as though Document/Lexington did much better with Jive, getting a higher royalty rate against the larger company. As of May 28th, Jive had a market cap according toYahoo Finance of $1.10 Billion. The complaint seems to specifically allege infringement based on Jive's API product line. According to its recent press release announcing earnings for the first quarter, Jive had product revenues of $30.7 million. Unfortunately, Jive does not seem to break down the numbers in their conference call. However, similarly to the other settlement, any revenue that is obtained by Lexington/DSS as a result of this lawsuit will help to further finance their legal actions against the rest of the Defendants. However, besides revenue why would these early settlements be important?
For an example of why this could be so important we can easily recall the days when Vringo (VRNG) announced a partial settlement with AOL(AOL). In the case of Vringo, they ended up winning a jury verdict against all of the Defendants in the case, including Google (GOOG) and AOL amongst others. The partial settlement well in advance of the trial provided minimal revenues to Vringo, but the symbolic nature of a settlement was much more revealing.
Now, jumping back to the DSS news, this settlement serves a few purposes. First of all, both of the Defendants are essentially acknowledging that the patents are valid and enforceable. If the Defendants had any beliefs that the patents were not valid and enforceable, they would probably have continued litigation and pushed hard for the judge to dismiss the case. This is a very important caveat in a patent litigation case, as if a patent is not valid and enforceable often the judge will not even let the jury hear the case.
This settlement is also important because it provides a starting base for determining what the patents would realistically be worth in terms of royalties during a jury trial. By providing a licensing history of 4-5% of the revenue for infringement, Document would be setting itself up nicely for arguing for an even larger royalty in post-trial infringement due to the changed bargaining positions of the parties involved in the litigation. Obviously, if Bascom Research wins its case than its hand will be considerably strengthened when determining ongoing royalties. Providing a licensing history will help the jury to determine reasonable damages, should they ultimately come to the conclusion that the other Defendants infringed upon the Bascom Research's Patents.
In addition to the impressive news of a partial settlement, Lexington and subsequently DSS have a very important date for their patent infringement lawsuit coming up. Lexington previously announced a markman hearing date for October 2nd, 2013. For those of you less familiar with what a markman hearing is, it is a time where both sides have presented their proposed language that a jury will hear as to what the patent covers. The judge will ultimately rule on which language will be presented to a jury. Obviously, the Plaintiff would like as broad of language as possible, as that would mean more chances for a finding of infringement from a jury. Whereas the Defense would like a very narrow definition, as it will be easier to argue that no infringement occurred. This date is very important for patent litigation, and often stocks will run up if they receive a favorable markman ruling for an example see ParkerVision (PRKR). This date will help to get a feeling for DSS about where its case will stand. The language will be very important for both sides in the sense that it will determine how they tailor their arguments to the jury. Turning back towards the settlement, the fact that a Defendant chose to settle even before the markman hearing would suggest that the infringement was pretty obvious no matter how the patent would be interpreted by the court. Given the recent settlement, I would say that there is a good chance for DSS to be successful in terms of their markman hearing.

The settlement helps to further entrench DSS shareholders, and can help to reassure shareholders that the patent litigation will ultimately be successful. While patent litigation is inherently a risky business, the settlement can be nothing but good news for DSS shareholders, which should help to encourage some other Defendants to analyze the validity of Document's claims and whether or not it would be cheaper to settle. The settlement should help to solidify the positions of long term shareholders, and helps to provide the idea that Document will be successful in their patent infringement lawsuit. We can only hope to see a repeat of the Vringo scenario for DSS shareholders and ultimately see a jury verdict in favor of DSS.

Another interesting patent play: Single Touch

Single Touch interactive (SITO) is a company that you doubtlessly have never heard of before. Similarly, I have never heard of SITO until recently. There are a few things that have caught my eye about this company, the first is the fact that it is suing Hulu, and recently sent Facebook a letter regarding Single Touch's intellectual property. They also have retained a rather good IP litigation firm in Polsinelli Shughart, a tier one patent litigation firm. This could be one to watch, and SITO is not your typical patent troll in the respect that it also has revenues and a solid core business, very similar to DSS once the merger is finally completed. I will do some more due diligence on the company in the upcoming days and post a much more complete bio of why I like this company. This is definitely one to put on your radar!

Vringo's Appeal: Why it matters

The purpose of this post is to rather quickly clear up some misconceptions of investors regarding the appeal filed by Vringo (VRNG). Vringo is appealing the laches and past damages portion of the judge's decision. They are not yet able to even appeal the running royalty rate etc. The easiest way to think about the case at this point would be as almost two seperate cases. One phase would be the laches, and the other the Running Royalty rate. This appeal was brought on by the judge's final rejection of Vringo's motion for a new trial yesterday, as soon as the judge rejected that all of the outstanding motions regarding the laches issue was therefore solved. This opened the door for Vringo's appeal.

This appeal is great for Vringo, as it has the potential to yield a huge amount of money, with little downside as the worst that could happen is that the appeals court keeps the current damages calculation in place, which would mean $30 million for Vringo. I would however speculate that it was more positioning. If Vringo were in negotiations with Google, they just raised the ante and now have a stronger hand going into the negotiations. If Google does not provide the types of numbers that Vringo wants, Vringo will just simply walk away and say that they will see Google in the court of appeals. 

Hot Stocks to Watch

For all of us out there who like to watch stocks, here are some stocks to watch in the upcoming weeks and months in my opinion.

1. Titan Pharmaceuticals (TTNP)- With their positive advisory vote today, Titan has the potential to start swinging for the fences. The Price per share might see an increase back to the levels where it was before the FDA released documents.

2. France Telecom (FTE)- While I liked it better a week ago, I do believe that this stock is still one of the more undervalued stocks on the market. Its Forward P/E is very low, and it pays a hefty dividend. These facts combine to the conclusion that FTE could be in buy range.

3. Vringo (VRNG)- For those of you who have never heard of this company, I will provide some background. It is a company that is primarily engaged in the enforcement of intellectual property rights. This company owns many different patents and recently won a key case against Google for patent infringement. While the jury came back with a running royalty, and some past damages the issues for Vringo remain what the running royalty will be, and if they can overturn the judge's controversial laches ruling. Vringo has the potential to jump based on the court's announcement any day, and the fact that they already won a trial by jury, where the jury found Vringo's patents to be valid, enforceable, and infringed upon helps to lower the possibilities for downside. It is rather clear that Vringo will get something, the question is just how much they will get in damages.

4. Finally, another stock which as of late I have grown rather fond of is: Worlds inc (WDDD). This is another patent play, and they are suing activision blizzard over patent infringement related to the Call of Duty and World of Warcraft franchises, respectively. These lawsuits have the potential to become huge, and as we get closer to the marksman date, we should see the stock to continue to run.

I would keep my eye on these stocks in the coming weeks and months ahead, as I believe that they all have huge potential. As always, this article is meant for solely entertainment purposes, and should not be construed as investment advice. This is not an offer to buy or sell securities. You invest at your own risk. I have received no compensation for writing this article, other than from amaxstockideas.blogspot.com