More on Modavox, Tacoda, AOL Time Warner (TWX), and Patent Trolls


Predictably, our story on a tiny Phoenix company called Modavox (MDVX.OB) suing Tacoda for patent infringement inspired Modavox shareholders to blast the messenger:  You don’t understand, there is “real meat on this bone,” the patent is valid and is going to result in “way more than a few million in hush money,” the AOL/Time Warner (TWX) Tacoda deal is going to be put on hold until Tacoda pays up, etc.


Anything’s possible, so we called around.  We’re not claiming this is the end of the story–we haven’t yet talked to the plaintiffs or their attorneys, for example, or crawled through patent applications.  If the plaintiffs have any insight beyond the generalizations in their press release, we’d be glad to hear it.  For now, for balance, we’ve included reader opinions about the merits of the lawsuit (after jump), with one being good enough to admit that he owns a few MDVX shares. (For the record, I own shares in Time Warner, although if this ever becomes a big enough issue to matter to TWX, I’ll be flabbergasted).

A non-disinterested source with knowledge of the situation tells us:

  • Patent trolls often file infringement claims after deals are announced in the hopes that a “contingent liability clause” might result in an immediate payoff (lest the deal be stalled).
  • The AOL-Tacoda deal does not have a “hidden contingent liability” clause that could cause it to be put on hold until Modavox can be persuaded to go away.  It is still on track to close soon.
  • The patent in this case concerns some personalisation technologies that were relevant in the late 90s (when the patent was filed). 
  • Some not-disinterested parties who have examined the patent regard it as one of those ridiculous patents that never should have been issued and will eventually be declared invalid.
  • AOL has been very aggressive about defending IP lawsuits in the past.
  • Defendants in patent-troll cases have many options, including searching for “RocketDocket” districts in which to file counter-legislation asking that patents be declared invalid.  The goal here is to force the troll to put its money where its mouth is in terms of ongoing legal fees–and, better yet, to possibly expunge the patent before the original infringement suit even gets to court.

Our source also tells us that patent legislation is going to become an increasing problem in the digital industry, because so many patents were filed in the late 90s right before the companies that filed them went bankrupt.  The patent troll business is now getting organised: Some troll attorneys do the research themselves and then recruit corporate clients to act as plaintiffs. 

There is no evidence that the latter is what happened in this case (even our not-disinterested source didn’t suggest this).  The plaintiffs’ firm, Fox Rothschild, is also said to be a reputable firm with a good reputation, a point highlighted by one of our readers.

Frank Toms August 15, 2007 at 11:03 AM Henry,

I would respectfully suggest and predict you are completely 100% wrong.

I work in the technology industry for a large player in the space, I also own a few shares of Modavox but nothing of real consequence. It is little more than a speculative investment for me.

Unlike others, I know this technology and its relevance to the online ad streaming space and I know multiple other large companies are in fact infringing. I also know people are starting to to talk about the company behind closed doors. Again, I do my homework before I comment.

In fact, if you would like to discuss the technology itself, I’d be more than happy to do it here with you.

Here’s what you will see and remember exactly who told you this. Tacoda will settle and it will either be a licensing arrangement or sizeable payment far in excess of your suggested few million. You will hear no “jaw boning” from lawyers because Tacoda doen’t want it out there. If AOL is smart and if they look at exactly what Modavox owns in it’s IP, they will immediately buy them before a Google, Yahoo or Microsoft do.

I know and others are figuring out as we speak that the value of this small companies patented intellectual property is tremendous. They are sitting on some of the most valuable patented technology relating to online advertising, streaming media and the internet itself. The recent issuance of the second patent is the smoking gun as the first patent was going to be hard to enforce. The third one pending will be equally as important as the second and I expect it will be issued shortly.

Let me ask you this, did you know that Modavox had already identified Tacoda as an infringer with the intent of going after them before AOL announced their intention to buy Tacoda? If you were Modavox and owned the technology being used by Tacoda, would you not have done the exact same thing? Do you believe it is ok for one company without any patents to take another companies patented property and sell it as their own?

Understand Henry that Tacoda’s entire business plan is built on technology owned by someone else. This is not ambulance chasing or patent trolling, this is standing up and fighting for what is rightfully theirs, what the USPTO as recently as a month or two identified and affirmed as their property through the issuance of a new patent.

This is not supposition or commentary I make lightly. Just watch how this plays out and I think even you will find yourself quite surprised.

I think it’s great that you are getting the story some much needed attention but I’m just surprised someone of your intelligence didn’t put more effort into this before posting your thoughts.

Thank you for the exchange and your response.




Tim August 15, 2007 at 01:14 PM Mr. Blodgett,

I know little of the issue or merit having not researched it. Patent litigation is not my area of expertise or practice. That being said, I do know a handful of attorneys with Fox Rothschild LLP. My office is in close proximity to theirs here in NY. I can simply tell you from my experience that they are a very reputable firm with some talented partners who typically would have done extensive research into the merits of any clients claims before ever taking the case. Someone here stated they were working on contingency, although I doubt it to be 100% contingency, they certainly would never take any client bearing any expenses whatsoever if not fairly confident in the merits.

I just thought it relevant to point out that often times, the quality of the law firm itself representing a plaintiff and the structure of their agreement can give insight into the true merit and viability of the litigation. Knowing their lawfirm Fox Rothschild to be well respected and highly ethical, and having heard of the lead attorney Dan Coughlin, gives me some comfort that they at least believe they do have something both enfoceable and valuable.