Vringo versus Google - Estimate of Jury Award

This article outlines my thoughts and speculation on the amount of past damages and future royalties which Vringo may be awarded in its recent case against Google. Investors and traders are sitting on pins and needles waiting for the jury to deliver its verdict on the patent infringement case. The verdict will likely come early next week, if not on Monday November 5th. As of the end of the business day on Friday November 2nd, the jury has been deliberating for one day.

COMPUTATION OF PAST DAMAGES

First, from S&P, below are Google's quarterly revenue numbers:

In the spreadsheet below, the first step in computing damages is to remove Motorola's revenue from Google's Q2 and Q3 revenue in 2012 (since Google bought Motorola in August 2012).

Next, we calculate that 96% of Google's revenue come from AdWords as mentioned in this article (and numerous others that I have read).

Next, in this post from Google, it states 54% of revenue in the second quarter of 2012 was from outside the United States.

Once Google began infringing on the Lang patents, it was estimated that Google's revenue immediately increased 20%, so I have added that to the spreadsheet as well.

We're almost done... the royalty rate for which Vringo is asking is 3.5%

Finally, Judge Jackson has stated that Vringo can collect damages from September 2011 (when the suit was filed) to present day.

As you can see, when you plug in all the variables, the one time award should come to approximately $145 million for past infringement only.

COMPUTATION OF FUTURE ROYALTIES

Future royalties are a much easier nut to crack now that we have the above estimates. Let's assume Judge Jackson keeps the royalty rate stays at 3.5%. Also, in the interest of being conservative, also assume Google's going forward revenue stays completely flat. This way, we can take an average of the payout from the four full quarters (above).

Wow! If awarded by the judge, future royalties at a 3.5% rate, through the life of the patents, should come to a very tidy sum of $575 million. Please let me know if you see any items I have left out of this estimate.

Good luck and happy trading!