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Why VirnetX is the Next Battleground Stock

VirnetX is shaping up to be the next big tech battleground stock.

As with all battleground stocks, this one has a great story. In a nutshell: It makes security software for 4G phones. If all goes well, based on everything the company and its promoters say, every 4G wireless manufacturer will need to license its technology.

Much of the enthusiasm is tied to last year’s payment of $200 million by Microsoft after losing a patent fight with VirnetX .

VirnetX is now suing a number of other companies, including Apple , Cisco , Siemens and Avaya—also on charges of patent infringement.

Recently, it got increased visibility after Cowen & Co. issued the first mainstream buy report on VirnetX even though the stock has doubled since March.

That fueled further interest late last week as VernetX execs appeared at a Cowen Investment Conference in a room that i'm told was packed.

But let's keep this in perspective: Even with a $1.3 billion market cap, the company has only 11 employees, virtually no revenue and isn't making any money.

And we're talking a U.S. reverse merger (class of 2007) whose entire future is based on the murky, costly world of patents.

My take: As with any battleground stock, expect to see both the shorts and longs claim various victories until either the company wins or loses its patent cases. The proof, as always, will be in the profits and they’re a long way off.

Questions? Comments? Write to HerbOnTheStreet@cnbc.com

Follow Herb on Twitter: @herbgreenberg

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