Local.com - Part 1 - A Patent Speculation Play

The firm got Nasdaq listing 10/2004 when it raised $22 million at $8/share. The listing enjoyed early success with the stock climbing steadily to $30/share in one month. This was a ride on the back of press releases such as the one about licensing “Local Direct(TM) search and advertising platform to Internet Yellow Pages (IYP) provider, MYePages LLC”. By 5/2005, the stock was down at $5. By 6/2007, the stock was hovering around $4 and the average volume 100K down from 1 million in 2005. Then excitement began with 2 patent announcements.

The first being the June 25 press release for U.S. Patent Number 7,231,405 For Location-Based Search . This immediately attracted a positive blog report (Could Local.com Become the Local Search Industry's Qualcomm?) from John Gilliam (a long – disclosed in the article) and a rebuttal from Marty Himmelstein, a local search specialized tech guy who founded Long Hill consulting. John’s published profile indicates that he has a law background and is the manager at Point Clear Strategic capital. Long Hill consulting web-site indicates that the company may have competitive technology. So, the value of these points of view are limited by the fact that one way or the other each of them has personal benefits by portraying Local.com’s prospects in a certain way. Below is an attempt at what can be derived from the public info. The basic claim of this invention is as follows (the spelling/grammar problems are as is from the patent text!!??? ) -

A method for geographically indexing information, the method comprising: identifying a geocoded web page of a web site; identifying a aeocode contained within content of the geocoded web page of the web site, the geocode indicating a physical location of an entity associated with the web site; identifying at least one geocodable web page of the web site, the geocodable web page does not contain the geocode; indexing content of the geocoded web page and content of the at least one geocodable web page, the indexing including associating the geocode contained within content of the geocoded web page to the indexed content of the geocoded web page and to indexed content of the at least one geocodable web page to allow geographical searching of the content of the geocoded web page and the at least one geocodable web page relative to the geocode

There are 20 other claims based on this one. Reading this text, it seems the claim is very broad but involves several steps. Each of the steps can be done many ways and these claims attempt to pin down the ways. Marty’s rebuttal is based on two basic arguments: a) prior art from Microsoft that has similar language and b) some of these steps are either inefficient or there is prior art that does it better. He backs up his arguments with technical points. But for an investor what matters is whether local.com can make money out of the invention profitably. To that end, the prior art citing does not seem especially worrying, given the patent examiner cited the work already – in fact, most all patents cites prior art on which portions of the work is based on. The rebuttal pointing out the inefficiencies are however somewhat worrying. What that means is that a competitor by doing one of the steps more efficiently could side step the patent and also have a more functional product.

John’s article speculates on the similarities of the business strategies that may exist between successful web businesses that eventually got acquired for a lot of money such as Overture. The title is a good giveaway on the general tone, given Qualcomm developed a patent strategy after being a fairly successful company for many years. Further, Local.com has not explicitly stated anywhere that their business strategy is focused on defending their IP. So, most of the article can be termed as overly optimistic speculative musings of a fellow blogger.

Patent litigation/settlement profits are a long shot, in general are a long shot. Local.com might not use that as a strategy, given there are lot of companies using similar technology that may have sidestepped the claims in the patent. Whether licensing royalties will materialize based on this invention depends on time to market issues rather than how good the invention really is. If partners/competitors see immediate benefit in licensing the technology as opposed to developing similar technology from scratch, then there is a chance that they will see some material benefit. As an investor/speculator, we will have to wait and see the company’s cues…

Local.com Analysis:
  1. Part 1 - A Patent Speculation Play.
  2. Part 2 - 411 Patent Details.
  3. Part 3 - Investment Outlook.
  4. Part 4 - Analysis Of Another Speculative Upturn.

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