Yahoo, Facebook, Google Patent Wars to Alter Tech Industry

Joel Anderson |

Segrey Brin, Larry Page, Google Co-Founders, googShares in software company Vringo (VRNG) had jumped an eye-popping 105 percent over the last two days. The story, in and of itself, wouldn't normally capture a tremendous deal of attention. Even after doubling its share price, the market cap of Vringo remains under $35 million, and massive swings in fortune for micro cap companies are relatively common place. However, the reason for Vringo's major shift in value could have potentially drastic implications to the technology industry. Vringo jumped based on a lawsuit filed in September of last year against Google (GOOG) claiming that it willfully violated patents owned by Vringo that Ken Lang filed in the mid 1990s. The amount asked for? Oh, just $67 billion plus future revenues.

Patents Wars

The Vringo case may or may not be as tremendous a deal as some would make it out to be. Firstly, the patent lawsuit was filed in September of 2011. Why did Vringo's stock suddenly jump 87 percent on Monday and just over another 9.25 percent Tuesday? Essentially it can be traced to an article by James Altucher, who was a grad school friend of Ken Lang and is long Vringo, who forcefully stated Vringo's case and implied that the lawsuit was not frivolous. The jump may be warranted. Vringo is a tiny company, and should it win the lawsuit or force a large settlement from Google it would mean an even more drastic climb. However, others, like Seeking Alpha's Modernist, are a bit more skeptical as to whether or not patent law can be as broadly applied as Altucher seems to believe.

However, the size of the lawsuit, and its potential implications for the entire industry, bring up interesting ideas about the nature of patent law. The lawsuit is one of many like it as the world of the internet still finds its form. A number of high-profile patent cases have popped up in recent history. Apple (AAPL) is suing Samsung over devices it claims are too similar to Apple's iPhones and iPads, British Telecom (BT) is one of many other companies to file suit against Google, and it's widely speculated that much of Google's motivation for purchasing Motorola last year for $12 billion was motivated by Motorola's patent portfolio. Most recently, Yahoo (YHOO) is suing Facebook (FB) over the latter's news feed.

Good for Business?

It's hard to say how things will shake out for these lawsuits, but they raise important questions about the nature of these laws. While patents are essential for the protection of intellectual property, it's also clear that the current system is prone to abuse. People known as "patent trolls" make a business of buying up and filing patents with the specific intent to use them in later lawsuits. If Vringo wins its lawsuit, it will essentially destroy Google, one of the most innovative and valuable companies in the United States. As such, it seems obvious that American law will need to find a strong middle ground that will both protect intellectual property while also preventing frivolous lawsuits.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
BT BT Group plc American Depositary Shares 25.43 0.06 0.24 443,317
FB Facebook Inc. 128.27 0.18 0.14 18,402,945
GOOG Alphabet Inc. 777.29 2.28 0.29 1,585,333
MATW Matthews International Corporation 60.76 0.62 1.03 91,236
VRNG Vringo Inc n/a n/a n/a n/a
YHOO Yahoo! Inc. 43.10 0.53 1.25 10,374,757

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