It’s beginning to look like all that money being poured into mobile search may end up in the pockets of patent lawyers.
Shares of Local.com Corp. skyrocketed last week after the online search company said it had received a patent for ad-supported mobile search. The Irvine, Calif.-based outfit said the patent addresses “the method of responding to enhanced directory assistance” including voice- and text-based searches from wireless handsets.
The patent also covers a referral ad system employing pay-per-click, pay-per-call and other models, Local.com claimed.
The grant could prove to be a formidable weapon in the ad-supported mobile search space, which has become one of the hottest areas in wireless. Pure-play startups such as 4Info Inc. and go2 are squaring off against a host of competitors including traditional directory-assistance providers and Internet giants such as Google Inc. and Yahoo Inc. in a race to deliver marketing messages alongside local business listings and other content.
Business-model patents
While patents traditionally have been granted to technological innovations, Local.com’s patent underscores the growing trend of awarding intellectual property rights to business models. CEO Heath Clarke signaled the company may be more interested in cashing in by granting licensing rights than by convincing mobile subscribers to use its service, boasting that his company has patented an established business model.
The patent “is complementary to our local search patent (which was previously granted) in that it provides us with intellectual property coverage for what’s now a widely accepted monetization method-within the directory-assistance marketplace,” Clarke said in a prepared statement. “We encourage directory assistance and free 411 companies that are interested in using our intellectual property to enter into licensing agreements with Local.com.”
Investors responded immediately, sending shares up more than 50% to $10.64. The rally continued for several days before the stock settled around $12 Friday afternoon.
But industry insiders questioned the patent, noting that a small army of companies have experimented with ad-supported mobile search services. Local.com’s patent appears to overlap with similar patents by Geomas, Ingenio, Microsoft Corp. and Jingle Networks, which operates the popular 1-800-Free411 service.
Jingle Networks claims its patent is for a system that delivers ads related to search queries. A user searching for television sets, for instance, could receive an ad from Best Buy, while a search for new homes could result in a link for a real-estate agent. The company last month announced plans to go after competitors it believes are infringing on its patent.
Of course, Ask.com, Google, Yahoo and a litany of others have employed such services for years on the traditional Internet, and perhaps a dozen companies are experimenting with them in mobile.
“It seems like every month or so I see somebody talking about ad-supported directory assistance, click-to-call, etc.,” said Neil Strother, an analyst with JupiterResearch L.L.C. “Is everybody inventing this all at the same time? Who’s been out of the chute first with this technology? It’s really hard to say.”
Down the mobile e-mail path
Indeed, mobile search seems to be headed toward a patent-lawsuit feeding frenzy similar to the one currently occurring in mobile e-mail. Patent-holding company NTP Inc. initiated the free-for-all several years ago with a high-profile-and highly successful-lawsuit against Research In Motion Ltd., and the company recently targeted Treo marker Palm Inc. Meanwhile, California’s Visto Corp. has brought patent-infringement suits against several competing mobile e-mail providers, including Microsoft Corp. and Motorola Inc.’s Good Technology.
After shelling out $612 million to settle the NTP case, RIM has lobbied business leaders and policy-makers to overhaul the patent process. Patent reform appears to be gaining momentum, but Texas Instruments Inc. and AmberWave Systems Corp. are fighting two bills now being considered by the U.S. Congress, claiming the pieces of legislation go too far.
Analysts say the RIM/NTP fight shackled the mobile e-mail market in the United States as businesses were hesitant to deploy BlackBerry devices for fear of an injunction that would shut down service. A similar impact is not expected in these early days of mobile search, however, as users would likely be unaware of any patent litigation.
The patents could have tremendous impact, however, as consolidation winnows the number of players on the field. Local.com’s market capitalization exploded following its announcement last week, nearly doubling to more than $115 million, and the company could make for an attractive acquisition, serving either as an entry to the mobile e-search market for an outsider or as bait for a well-heeled competitor looking to avoid a potentially costly legal fight.
So as mobile search begins to get legs, it appears the courts may have as much influence in determining the winners and losers as consumers will. But don’t expect the market to shake out anytime soon, Strother warned. “These things can play out for a long time; it could be three or five years or so,” the analyst predicted. “I get the sense that it’s going to be pretty murky for a while.”
