Tuesday, July 8, 2014

Vringo v ZTE Breach of Contract


A recent filing was just discovered involving Vringo suing ZTE in the SD of New York in a Breach of Contract dispute.  According to the complaint Vringo and ZTE signed a confidential NDA on December 6th 2013 and held a settlement meeting on December 10th, 2013.  Every page was marked confidential subject to NDA.

On February 21st, 2014, ZTE filed an antitrust complaint in China and submitted the entire presentation in an exhibit in the Chinese Complaint, including the amount of Vringo's settlement offer.  Vringo did not become aware of the Chinese complaint until June 26, 2014.  Vringo is now trying to enforce its contract rights in the NDA by obtaining a temporary restraining order.

The Chinese court accepted the case and Vringo is alleging that multiple Judges in China have reviewed the information that was under NDA.  A first hearing of the case is scheduled for August 14, 2014 and will be open to the public.  A substantive hearing is scheduled for the next day on August 15, 2014 and again will be open to the public.

Vringo is seeking to have the Chinese cases withdrawn by ZTE and the breach has & will cause irreparable harm to Vringo.  ZTE is asking for millions of dollars in damages in Guangdong Appellate Court and is trying to harm Vringo's patent infringement monetization campaign.  Vringo is also asking for attorneys' fees and costs along with further relief the court deems just.

In my opinion ZTE filing complaints both in the EU and China is out of the playbook of Huawei who did this in their litigation with Interdigital (both parties agreed to binding arbitration to settle the dispute).  It is a way for Chinese OEMs to try to gain leverage in their patent disputes and avoid paying the maximum asking price.  It also sends a message to other patent holders that they will not roll over.  Having the cases withdrawn in China would weaken ZTE's negotiating position.  I believe it is already weak in light of injunctions being granted in Germany, India, and Brazil.

In Exhibit C, ZTE is trying to compare a license between Interdigital and Samsung in 2007 in the range of $400M in a 4 year agreement.  I think it is important to note that ZTE has still not agreed to a license with IDCC, which sued them back in July 2011 and is ongoing in multiple venues.

I am getting the opinion that Vringo is asking for a comparable amount to resolve the cases and for a global settlement in a six year license.  I have run a similar analysis backing into ZTE's financial statements, which yielded a slightly smaller number with a number of assumptions.  I did not publish as I did not feel comfortable publishing an analysis with too many obvious flaw.

The endgame for Vringo is a global settlement/patent license with ZTE, which I feel we keep moving another few notches towards as Vringo continues to secure favorable decisions in jurisdictions around the world.  The breach of contract dispute is another cog in the wheel to get a deal signed.  The timing if ever is very difficult to predict.

Disclosure:  I am long Vringo.

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