The Reality Breakdown...
The disappointing settlement seems to be approximately $3 Million dollars and the obvious question is, "Why so low? Didn't Microsoft use the 744 technology to make billions of dollars in sales of .Net and Sharepoint?" Well, we think so. The extent of Microsoft's use of the 744 technology is speculative since we do not have the luxury of access to such information. Presumably Niro, et al, did, so I for one, have to wonder if this accounts for the small amount of the settlement? Possibly. Again, it's speculation.
Some do not think the settlement amount reported in VCSY's 3Q08 report is the whole story. They point to such circumstantial evidence as the "confidentiality" of the settlement terms (If the whole settlement is only $3 Million, why would they make it confidential?), the fact that Microsoft settled the day before the Markman hearing (coincidence or was MSFT's/VCSY's back against the wall?) and the fact that the amount just seems too small when compared to the presumed financial benefit Microsoft realized all these years by their alleged infringement of 744.
Many think that royalties on future sales of the Microsoft products utilizing the 744 technology are part of the settlement agreement and such royalties will become a continuing source of revenue for Vertical. Add this thinking to the presumed additional licenses from other alleged infringers (Adobe, IBM, Google, etc.), whose forthcoming licenses are also presumed to include a "future royalties" provision, and the picture looks somewhat rosey again...
The problem is, all of the above is pure speculation! You know, just like the speculation of a settlement worth multi-hundreds of millions or even billions of dollars? What's worse, the current bout of conjecture seems to be thumbing its nose in the face of hard facts to the contrary. The 10Q plainly states in Note 5, Legal Proceedings:
"In July 2008, the Company settled its patent infringement claim against Microsoft Corporation and received the agreed upon settlement proceeds in August 2008. The settlement amount was recorded in licensing and maintenance revenues, while the contingent attorney fees were recorded as part of selling, general and administrative expenses... Pursuant to the confidential settlement agreement, the Company granted to Microsoft a non-exclusive, fully paid-up license under the patent which was the subject of the legal proceeding."
To paraphrase the above, it says, "We settled the 744 infringement claim against Microsoft and were paid the full agreed settlement amount by them. In return, we licensed 744 to Microsoft on a non-exclusive basis and in perpetuity for the life of the patent."
Obviously, my paraphrase makes some interpretations of the above-quoted language, primarily my conclusion that the amount paid to VCSY and reflected in the 10Q represents the full settlement amount, with no further monies coming from Microsoft for 744. I have already posted several messages on Raging Bull (with references) as to why I think this is the case. "Fully paid-up" implies a one-time lump-sum payment or possibly an installment plan paid periodically, but only up to the full lump-sum amount (possibly with interest).
It is my belief that if there were ongoing (so-called "running") royalties coming from Microsoft with respect to 744, Vertical would not have used the phrase "fully paid-up" to describe the license. They would also not have plainly stated that the settlement amount (the presumption is the "full" amount) had been received. Further, I believe Vertical would have made mention of the fact that the amount received was only a partial payment or would have specified that the amount received was only the settlement for past infringement (as some on here suggest) and that there are other arrangements for Microsoft's future use of 744. Disclosing such information would NOT have been a disclosure of the terms of the confidential agreement.
Someone else made the argument that the 10Q only covers events that occurred during the quarter and wouldn't contain information about future events. I disagree. Just above the statement about the Microsoft settlement, the 10Q contains information about the ongoing Ross litigation, including statements of future events (Ross' appeal hearing in January 2009). The reason for this is because VCSY wants it to be known when this matter is to be settled since they anticipate a decision in their favor and such information is attractive to current and potential investors.
The same logic applies to statements about the alleged ongoing nature of licensing royalties from Microsoft. If the payment received was only a partial one or if there was an agreement for running royalties in the settlement, I believe that Vertical could have stated this in the 10Q without breaching the confidentiality agreement Simply saying that the company expects further payments from Microsoft discloses no specific confidential terms and would be looked on favorably by current and potential investors, just like the information about Ross' appeal.
The bottom line is this: Either I'm wrong or I'm not.
If I'm wrong it means that there are potentially ongoing licensing royalties to be paid by Microsoft concerning 744... how much and for how long is anybody's guess.
If I'm right, then there are no such royalties forthcoming and what we got was all we get. Again, I'm only talking about 744 here. I firmly believe that Microsoft might also license 521 from Vertical as well, although if it happens I believe this will also be a one-time lump-sum payment for a fully paid-up perpetual license. I hold this same position with respect to any of the alleged infringers that enter into any future licensing agreements with Vertical for either 744 or 521. This protocol is the standard in the industry when companies license their patents and I'm not going to let rampant speculation and heartfelt desire or desperation get in the way of understanding the situation for what it is.
It was this very kind of rampant un-checked euphoria and speculation and that led to the crushing disappointment of November 14, when many of the Raging Bull posters' mega-millions hopes and dreams of early retirement were extinguished by a sobering splash of cold reality. Seems like the contrarian KantUC (Mirror) was the only one over there that made any money on this dog when he sold at 10-11 cents. Good for him.
But now, the RB legacy longs are dutifully back at it, pumping away and nervously polishing their rose-colored glasses while hoping that we'll believe them when they say, "Everything is fine! (Ahem.) In fact, things are better than ever! (cough, cough) Once these naked shorts finish collecting your (oops, their) millions, we'll be right back on track."
Yeah, ok. Lead on blind man.
I was admittedly among the unwashed non-techie masses that put faith in Portuno's 10-page, novella-like rants about how groundbreaking, disruptive, game-changing, and totally awesome (dude) blah, blah, buzzwords, VCSY's tech is/was. Now, I don't know what to think about it. Maybe it's not so super-cool after all. But then again maybe it is and there really is more to this whole thing than is exposed by the recent 10Q.
I'm 51% convinced that the whole thing is bullshyt and 49% convinced that it's worthy of all Portuno's buzzword-laced hype. Please do remember that all the hype and praise of VCSY's "game-changing" technology comes from Raging Bull's own absentee tech-guru, Portuno (who posts via the user Dabbler). For all his flowery rhetoric, why are there no others out there in techie-land singing the praises of VCSY and 744/521? Are we to believe that ONLY Portuno understand it and can see this vast new online world established on Vertical's technology? Anyone? I'd like to hear just one disinterested, non-invested, objective person say that VCSY is "the shyt" and will someday rule the world. Why do I expect that that won't happen?
Unfortunately, as upset as I am at the 10Q, I simply can't get out where the PPS is now. So, I'm just as stuck here as the rest of you, hoping like hell that I overlooked something in my research about patent licenses and that there is a brighter future for VCSY. I agree that the next 10Q will provide more conclusive information about the true nature of the settlement and I hope to hear about additional licensing agreements or other beneficial news in the meantime.
Good luck to us all.
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