Odds are you have never heard of Vringo, a relatively small company with an intellectual property portfolio covering various aspects of search and mobile technologies. But shares of Vringo (VRNG) surged more than 20% Monday after the company filed a patent infringement suit against the British subsidiary of Chinese telecom giant ZTE.
This is not the first legal action that Vringo has taken against one of the titans of tech. In fact, the company has also sued AOL (AOL), IAC/InterActive (IACI) and, most notably, Google (GOOG). Investors seem to love the litigious strategy. Vringo's stock has skyrocketed an eye-popping 80% in just the past week and are now up 440% year-to-date.
The most recent rally started after a judge in Virginia last week turned down a request by Google to throw out Vringo's lawsuit against it and several other firms. Vringo is also suing newspaper publisher Gannett (GCI) and retailer Target (TGT). The trial is set to begin on October 16.
Vringo, which acquired a large chunk of patents from Nokia (NOK) earlier this year, is clearly hoping that it can either win in court against the tech heavyweights or that many of these firms will settle and agree to pay some hefty licensing fees to it. In fact, AOL has already agreed to a partial settlement with Vringo.
Still, betting on legal outcomes is a dicey proposition. But traders on StockTwits are excited about the company's prospects. They are not alone. Dallas Mavericks' owner and billionaire entrepreneur Mark Cuban is one of the company's largest individual shareholders as well.
The ZTE lawsuit is interesting. It shows that Vringo clearly is optimistic about its chances of multiple settlements and may not be putting all its legal eggs in the Google basket. That's a point that several other traders picked up on Monday.
Given the importance of patents in tech, it's possible that Vringo could get acquired as well. Some have already speculated that Google, which shelled out about $12 billion for Motorola Mobility in what was largely an intellectual property land grab, could easily scoop up Vringo as well.
Even after you factor in this year's remarkable rise for Vringo's shares, the company's market value is still only around $180 million. So that could make it a target for a host of cash-rich tech firms looking for more ammunition in the mobile patent war.
It's possible that there could be a bidding war for the company. But right now, Vringo seems like a stock that's best for traders, and not long-term investors. The stock is moving on sentiment and headlines about legal battles. It's not easy to figure out how this will all play out.
And you can throw fundamental analysis, as well as technical analysis, out the window as well. In Vringo's most recent quarter, it reported revenue of just $100,000 and a loss of more than $5 million. Vringo's whole future seems to be predicated on licensing.
That can obviously be lucrative but it's also a big gamble for those who aren't well-versed in the intricacies of intellectual property law.
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