Does This Tech Company Have Another 200% Rally in Store for 2013?

In 2012, the mobile technology company Vringo (NASDAQ: VRNG  ) , known for its video and Facetone ringtones, saw its stock spike 200%. But the stock-price jump had more to do with its patent litigation than its mobile apps. Vringo's investors hope its search engine advertising patents bring millions in 2013, but the company's future is anything but certain.

From apps to patents
Vringo creates mobile apps that allow users to change standard ringtones to videos or picture slideshows. Its most popular ringtone, Facetones, has been downloaded over 1 million times since it launched. But lately, Vringo is known more for its courtroom litigation than its apps.

Vringo merged with Innovate/Protect back in March, which acquired the patents from Lycos. The suit sounds like a patent-troll scenario, but as TechCrunch's James Altucher pointed out back in March, the original creator of the patents, Ken Lang, works for I/P and created the ad sorting systems being used by the companies in the suit. So, depending on how you look at it, it may be more of a creator-protecting-his-work story than a company cashing in on some recently purchased patents.

But all that's just the backstory. Vringo's recent lawsuit win makes it an interesting investment opportunity -- or a potential flop.

Vringo unchained
Bullish Vringo investors point to the company's recent court win against Google (NASDAQ: GOOG) as a sign of things to come. The company won a suit against Google, AOL (NYSE: AOL  ) , IAC/Interactive (NASDAQ: IACI  ) , and Gannett (NYSE: GCI  ) back in November. The main crux of the suit said that Google and the other companies sort Internet search ads based on a system that Vringo's subsidiary, I/P, owns.

Here's how much the jury said each company should pay Vringo in damages:

Google

AOL

IAC/Interactive

Gannet

$15.8 million

$7.9 million

$6.6 million

$4.3 million

Source: Reuters 

Vringo isn't satisfied with the amounts, though, so it's filing another suit against Google and the others for a future royalty. This means that those companies would be responsible not only for past damages, but would also pay I/P a percentage of future money earned from advertising. The royalty would expire when the patent ends in 2016, or if the companies stop using Vringo's patented technology.

This is why bullish investors claim Vringo's stock could jump this year. If Google loses its appeal on the November ruling, and Vringo succeeds in winning royalties from Google and the other defendants, then the small app maker could receive millions each year.

But a future royalty isn't the only thing bulls are looking at. Now that Vringo's patents have held up in court, the company could go after Microsoft, Yahoo!, and anyone else that uses its technology as well.

Not every scenario looks rosy for Vringo, though. The company could lose its case against Google for future royalties, and the latter could also win its current appeal and not pay a dime in past damages. Even if that doesn't happen, it's possible Google or someone else could buy Vringo and add the company's patents to their own arsenal.

No crystal ball in sight
Vringo is focused on patent litigation, which means its mobile apps come second. With its only significant revenue streams coming from lawsuit rulings, its future and its stock stability depend on how those rulings turn out. That may be part of the reason why Vringo's stock is so volatile. The 200% increase is great for investors who bought early last year, but a ruling against the company, or one resulting in less money than expected, could push the stock, currently at less than $3, down very quickly.

I'm hesitant to be bullish on Vringo because of the companies it's coming up against. Google knows how to fight patent suits, and it has the money and the time to do it. Despite Google losing the November lawsuit, the company paid just a fraction of the $696 million Vringo sought. Future lawsuits could turn out just the same, leaving Vringo with minimal cash gains. But for its stock to really spike, investors will need to see that Vringo can win big money in the courtroom, or at least in settlement. 

With the stock price so dependent on court rulings, as opposed to products or services, Vringo seems more like speculation than a solid investment.

Although Vringo may try to bring Google back into court in the near future, Google is more than capable of handling itself in a lawsuit. The one thing Google hasn't mastered though is its mobile strategy. The company is doing well with its Android operating system, but faces stiff competition from Apple. Mobile is more important than ever, and that's why it's imperative to understand mobile's place in Google's sprawling empire. In The Motley Fool's new premium research report on Google, we break down the risks and potential rewards for Google investors. Simply click here now to unlock your copy of this invaluable resource, and you'll receive a bonus year's worth of key updates and expert guidance as news continues to develop.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 20, 2013, at 11:09 PM, clifffiscal wrote:

    Vringo is not filing another lawsuit against Google for future royalties. The running royalty issue will be decided as part of the original judgement when the judge issues his final ruling. The amount of damages the jury awarded has been a controversial point since the day of the jury's decision. Did the jury make an error figuring how much Google should be paying compared to the other defendants? Vringo has another suit set to begin shortly in Germany against ZTE for infringement in mobile applications stemming from patents it bought from Nokia. The author is correct that Vringo remains a speculative investment but there is much more to the story.

  • Report this Comment On January 21, 2013, at 8:30 AM, infochaser2 wrote:

    Here is another article that gives half truths!

    Vrng is waiting for JJ ruling! The jury has already awarded Vrng 3.5% royalties! Up to the judge to give more or less? Vrng has 60m in cash!

    Vrng won the case against Google! Lachers bought back to the case will destroy Google. Google knows better! They will settle! As for the main settlement payment? Its a one day trail if the Judge allows its! To recorrect the settle error from the jury.

    This stock can and will be halted within two weeks.

    On great news!

    Please do ur own dd!

    I'm long vrng!

  • Report this Comment On January 21, 2013, at 10:48 AM, mcreel65 wrote:

    Why don't you get your facts straight before you post bogus articles.Vrng is NOT filing a "new" lawsuit.They were awarded running royalties by the jury.They are now waiting for the exact amount from the judge.I don't understand how you people always write whatever is the most convenient for you.Next time read up on the subject before you print such idiocy!

  • Report this Comment On January 21, 2013, at 12:22 PM, infochaser2 wrote:

    Inept author! Chris Nieger hasn't got a clue what Vrng outcome is or what really has been known for quite sometime by any investor thats has a position in the stock. RR rulings are whats needed, Nothing else! Motions are just about completed! JJ can rule at any moment on royalties. The wantabe writers need to go back to school and study again! Poor America!

    Dumb getting dumber!

  • Report this Comment On January 22, 2013, at 8:49 AM, taishiba wrote:

    what a foolish article, really DUMB!

    no new info, just lies.

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