Should Google Inc (GOOG) Be Worried About This Tiny Tech Company?

Google Inc. (NASDAQ:GOOG) started its patent trail with Vringo, Inc. (NYSEAMEX:VRNG) this week. Vringo is a tiny company in comparison to Google, with a market cap that’s sub-$250 million, while Google trades at a market value around $250 billion. However, in the patent game it is more about what you have in your patent arsenal versus company size. Vringo is taking Google to trail in an effort to seek a multi million verdict for search patent infringement.

Google Inc (NASDAQ:GOOG) has opted not to settle, deciding to fight the so-called ‘patent troll’ in court. The lawsuit alleges that Google has violated Lycos’ search and search advertising patents that Vringo owns. Lycos is one of the pioneer search engine companies from the mid-1990s.

MILLENNIUM MANAGEMENT

However, just as Google Inc (NASDAQ:GOOG) is seeing pressure from Vringo, could Microsoft Corporation (NASDAQ:MSFT) or Yahoo! Inc. (NASDAQ:YHOO) be next? There has been speculation that perhaps Microsoft or Yahoo should buy Vringo and use the patents to sue Google directly. However, neither company has shown interest. On the other hand, Google could potentially purchase the company and use the patents against Microsoft or Yahoo. Yet, none of these things have materialized and Google has chosen to not even settle, leading us to believe that perhaps there is more smoke than fire at this point.

Google Inc (NASDAQ:GOOG) continues to exert its dominance in the search market, owning over 66% of the market per comScore’s latest market share numbers. Microsoft’s Bing moved up to 15% and Yahoo came in at 13%. Worth noting is that if any issues arises concerning Microsoft’s or Yahoo’s search methods, ramifications can very well fall back on Microsoft, at its software powers the Yahoo search engine per a partnership the companies entered into in 2009.

The actual damages sought by Vringo are unknown, but estimates range from $300 million to $700 million and a few beyond that, in the billions. These possible damage awards, albeit small in comparison to Google’s $43 billion in cash and short-term investments as of 2Q, are massive numbers compared to Vringo’s market cap. Vringo could really use a big break and many investors feel this is their big ticket, as the company has lost at least $6 million in each of the last four years. However, for Google Inc (NASDAQ:GOOG) not to spend the relatively small amount of cash to snatch the company up with an outright acquisition leads us to believe that Google wants to make an example out of Vringo for future patent trolls.

Vringo’s recent addition of 500 plus patents from Nokia Corporation (NYSE:NOK) brings an interesting dynamic to the company beyond the search market patents it is putting to use against Google—see more about why Google and Apple should team up against Vringo. Nokia has struggled for the last five years as it has seen its position in the mobile phone market dwindle. The company has a lot riding on its Lumia series, which runs Microsoft’s Windows 8 mobile operating system. Nokia sold off the small patent portfolio to Vringo in August in an effort to raise cash and re-invest in its core business, mobile phones. The deal netted Nokia $22 million and affords the company a portion of any future profits that Vringo receives in patent cases. Vringo recently raised over $30 million for acquisition of the Nokia patents, but the big gamble for Vringo is that if they lose the Google Inc (NASDAQ:GOOG) lawsuit they will be hard pressed to raise capital to fund other litigation battles.

The real question is whether taking a position in Vringo could pay off big time? The risk-reward profile is too rich for our blood. The company likely already has a large amount of upside baked into the stock price, but a potential loss on the lawsuit could seriously set Vringo back, and send the stock down in a hurry. This is due to the fact that there is very little the company has as far as assets and operations, besides a stout patent portfolio, which is holding the company’s stock price up.

There is much speculation on whether Vringo can pull off such a feat, with the company’s stock price up over 350% year to date. There are a few fund managers that are betting that Vringo at least has a fighting chance at winning. The overall fund interest is very small, but two top fund managers, Israel Englander and Ken Griffin, both took new positions in the company during 2Q. Even Mark Cuban joined the speculation party in April by purchasing over 7% of Vringo’s shares.

Vringo has a lot riding on this trail, with the company operating with a negative equity of 1.4 million as of 2Q. There’s no doubt that if Vringo wins the lawsuit they will see quite the boost in stock price, but the question then becomes what does Vringo do with its winnings, go sue another company over patents? The fundamental with this way of operating is that patent suits tend to be very unpredictable. We believe that the potential upside does not make up for the potential downside that the stock will face if they lose the lawsuit to Google Inc (NASDAQ:GOOG).

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!