By the Blouin News Technology staff

Vringo’s key to success: being a troll

by in Enterprise Tech.

US rapper will.i.am (C) is photographed on a cellphone prior to the start of the first presidential debate in Denver on October 3, 2012. AFP/ Getty/ Nicholas Kamm

Vringo suing Microsoft did not come as a surprise, since the small tech company had tried to take on giants such as ZTE and Google before (in October and July 2012 respectively). The small company’s shift into the patent industry highlights problems in the U.S. patent system.

 

Vringo started out as a ringtone company and later became a platform for sharing mobile content. Its services were along the lines of taking a contact’s photo from social media and setting it to appear each time they called.

 

On March 14, 2012, Vringo merged with Innovate/Protect an intellectual property company founded by former Lycos Chief Technology officer Andrew Kennedy Lang. CEO Andrew Perlman said the merger would be the key to Vringo’s success. It was.

 

When Google sued Vringo high-profile investor, Mark Cuban bought a stake in the company. He claimed the 7% stake was a hedge against the damage Vringo could potentially do against other companies Cuban had invested in.

 

The judge assigned to the case at the Eastern District of Virginia court rejected Google’s request to dismiss the case. The price of Vringo shares went up as investors waited for a payoff as high as a billion. The payoff was much lower. Vringo was awarded 3.5% royalty rate, which amounted to $30 million. Google paid the largest portion of that amount ($15.6 million) as the main party of the lawsuit. Other parties (IAC, AOL, Target and Gannett) paid the rest.

 

Fifteen million is pocket change for a company like Google with a $250 billion market cap. But it’s enough to change the situation of smaller player such as Vringo. Its market cap has more than tripled since its merger in March. Vringo did better than it had ever done as a mobile ringtone company. Emboldened by victory over Google and hopeful of another in the lawsuit it filed against Chinese phone manufacturer ZTE, Vringo is suing Microsoft over the same two patents in the case with Google. It purchased 500 Nokia patents for $22 million in August.

 

The dominant opinion is that Vringo is a worthless patent troll though some see it as a fighter against companies such as Google  — the real patent bullies, who create profitable products as they disregard the rights of small companies. Regardless of who is right, when being in the business of enforcing patents (especially ones they did not invent) shows more promise than innovation, it screams of a need for patent reform.