Why Vringo Shares Took Off

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of small patent licensor Vringo have gained over 10% today -- and had been up to 21% higher earlier in the day -- as investors digest the news of a major patent ruling in Vringo's favor.

So what: Yesterday afternoon, Vringo announced that the U.S. Patent and Trademark Office has affirmed the validity of its "420 patent." This and one other patent had been the subject of a contentious court battle won by Vringo subsidiary I/P Engine late last year against Google , AOL, IAC/InterActive, Gannett, and Target. Following its loss, Google had specifically challenged the validity of the 420 patent's key claims. Today's ruling ends any effort to contest the ruling, and opens the way to royalties, licensing fees, and potential damages beyond the $30.5 million originally granted to Vringo last year.

Now what: The patent, acquired from search pioneer Lycos, claims invention of "relevance filtering," one of Google's key search technologies. The original suit appears to claim that every time Google and its search partners algorithmically analyze a search string in order to tie the proper ad to its results, they are taking advantage of patented technology and thus should owe royalties.

To my admittedly untrained eyes, this does appear to be an example of patent trolling, since Lycos would have done much better had it actually developed this technology rather than simply thought about developing it. One commentator on Seeking Alpha believes that this might become a billion-dollar problem for Google, and that remains possible -- but any investment in Vringo based on this ruling is simply a bet on the outcome of a court case. Make sure you have a deep understanding of the legal issues before diving in.

Want more news and updates? Add Vringo to your watchlist now.

Will this patent suit be big enough to change the balance of power at the top of the tech world? It won't topple Google, as it's one of an elite group of companies shaping our digital and technological lives -- but yesterday's loss could give its enemies a leg up. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.

The article Why Vringo Shares Took Off originally appeared on Fool.com.

Fool contributor Alex Planes has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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