Vringo Inc., the intellectual property monetizer run by CEO Andrew Perlman, lost $200 million of market value after its stock tumbled 72% Friday Aug. 15 as investors reacted to a devastating U.S. Court of Appeals ruling that threw out the company’s infringement case against AOL Inc., Google Inc. and others.

Shares of Vringo, which trade under the symbol VRNG, fell $2.27 to 88 cents Friday Aug. 15 in Nasdaq Capital Market trading.

The Court of Appeals for the Federal Circuit reversed a jury verdict Vringo’s subsidiary I/P Engine Inc. won awarding it $30.5 million plus a running royalty of 3.5% that could have amounted to hundreds of millions of dollars a year, finding that patents infringed were “obvious” and therefore invalid, so no infringement took place.

The patents at issue were U.S. Patent Nos. 6,314,420 and 6,775,664, which relate to a method for filtering Internet search results that use both content-based and collaborative filtering.

Content-based filtering is a technique for determining relevance by extracting features such as text from an information item. In contrast, collaborative filtering assesses relevance based on feedback from other users.

The appellate court noted that the specifications of the ‘420 and ‘664 patents are substantially identical, but employ slightly dissimilar line numbering.

In September 2011, I/P Engine filed a complaint in the U.S. District Court in the Eastern District of Virginia alleging that Google’s AdWords, AdSense for Search, and AdSense for Mobile Search systems, which display advertisements on web pages infringed on ‘420 and ‘664.

Shortly after that I/P Engine became a subsidiary of Vringo in 2012.

During a 12 day trial, Google and the other defendants cited numerous prior art references to support their argument that the infringement claims were inlaid as anticipated and obvious.

The jury disagreed and awarded Vringo damages.

The Google defendants filed motions for a new trial and for a judgement as a matter of law on non-infringement, invalidity and damages.

I/P Engine also filed post-trial motions arguing that the district court erred in applying the doctrine of laches to preclude the recovery of damages for infringement in the period prior to the infringement claim being made in September 2011.

The district court denied all the post trial motions, after which the Google defendants filed their appeal before the Court of Appeals.

The appellate court in a 2-1 decision noted in its Aug. 15 decision that “the fundamental flaw in I/P Engine’s argument is that using an individual user’s search query for filtering was a technique widely applied in the prior art. Indeed, the shared specifications of ‘420 and ‘664 patents acknowledges that ‘conventional search engines’ filtered search results using the original search query.

Given that I/P Engine’s own patents “acknowledge that using the original search query for filtering was a ‘conventional’ technique, I/P Engine cannot now evade invalidity by arguing that integrating the query into the filtering process was a non-obvious departure from the prior art.”

The appellate court also shredded the jury's findings,  ruling that “not all of the jury’s findings support non-obviousness.”

Indeed, the appellate court noted that the jury even found that one of the two patents at issue — No. ‘664 — had been independently by other invented by other before or at about the same time.

“As we have previously made clear, near-simultaneous development of a claimed invention by others can, under certain circumstances, demonstrate obviousness.”

The appellate court then cited its own previous decision in Geo M Martin 618 F.3d at 1305 in which it said “Independently made, simultaneous inventions, made within a comparatively short space of time, are persuasive evidence that the claimed apparatus was the product only of ordinary mechanical or engineering skill.”

The appellate court also found some of the jury’s findings to be “internally inconsistent.”

“While the jury found that there had been unsuccessful attempts by others to develop the invention claimed in the ‘420 patent, it determined that there was no such attempts with respect to the invention disclosed in the ‘664 patent.”

Most importantly, the appellate court ruled that while the jury made underlying determinations as to the differences between the asserted claims…..it did not address the ultimate legal conclusion as to obviousness. Thus , while the jury found that the prior art did not disclose all of the elements of the asserted claims…..it never determined whether it would have been obvious to one skilled in the art to bridge any differences between the prior art and the claimed invention.”

The appellate court also said it found “no merit” in I/P Engine’s argument that the commercial success of Google’s accused advertising systems provides objective evidence of non-obviousness.

Indeed the appellate court cited the following from Ormco Corp. v. Align Tech Inc.: “Evidence of commercial success, or other secondary considerations, is only significant if there is a nexus between the claimed invention and the commercial success.”

The appellate court said contrary to I/P Engine’s assertions, “the fact that one of Google’s patents cited to the ‘420 patent does not establish that Google copied the invention disclosed in the patent. Nor is the fact that Google did not provide evidence at trial as to how it developed its accused advertising system sufficient to establish that it copied the claimed invention.”

New York-based Vringo issued a statement late Friday in which it disclosed the adverse ruling and said it was evaluating its options.

Company officials couldn’t be reached for further comment.

The reversal is a huge blow both for Vringo and its financial backers who have included Iroquois Capital LP and Hudson Bay Capital Management.

Officials from New York-based Iroquois and Hudson Bay couldn’t be reached immediately for comment.

This was the second adverse development for a patent monetization company last week. Spherix Inc., which also has backing from Iroquois and Hudson Bay, on Aug. 13 agreed to a joint dismissal of its patent infringement case against AT&T Inc., along with the dismissal of AT&T’s counter claim. The motion to jointly dismiss the case was approved by Judge Ed Kinkeade of the U.S. District Court for the Northern District of Texas.

It’s unclear how the dismissal of the AT&T case will affect Bethesda, Maryland-based Spherix substantially similar case against T Mobile Inc.

To reach the reporter responsible for this story please contact Dan Lonkevich at 707 318-7899 or by email at dan@thepatentinvestor.com