Barron's: The perils -- and opportunities -- in litigation

This week, Vonage Corp's (NYSE:VG) stock plummeted because a federal judge issued an injunction against the company regarding a patent dispute with Verizon Communications Inc. (NYSE:VZ).

Yes, litigation can be harsh on investors. And, usually companies disclose their legal risks in their SEC disclosures. For example, Vonage disclosed its Verizon litigation in its IPO filing.

As for investors, these disclosures don't really matter much. After all, most companies have litigation. And, even legal experts have difficulties determining the probabilities of a case.

Well, Barron's [a paid service] has an interesting article on the topic for this week's issue. The main focus of the article is the analysis of Nick Rodelli, who is the legal guru with the Center for Financial Research and Analysis.

For example, he thinks the World Wrestling Entertainment (NYSE:WWE) could get a nice bump in revenues if it wins some of its litigation on licensing.

On the other hand, he is concerned about the impact of antitrust litigation on MasterCard Inc. (NYSE:MA) and thinks the stock price has not reflected the risk. He also considers this to be the same situation with Sherwin-Williams Co. (NYSE:SHW). The company faces litigation regarding the sale of lead paint many years ago.

Rodelli thinks that it is common for investors to misprice stocks when factoring in litigation. And, this inefficiency is actually an opportunity for investors -- although, it requires quite a bit of expertise to pull it off.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.