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  • etphonehome1950 etphonehome1950 Dec 14, 2009 10:01 AM Flag

    AOL Achilles Heal and Major Material Liability

    The problem is AOL has a vulnerable achilles heal. There is a patent infringement suit that they are gettling currently beaten to a pulp in regarding their previous acquisition of Tacoda.

    Much like Ebay bought Skype but not the underlying IP, AOL finds itself in the same precarious situation. Armstrong's predesecor bought Tacoda for $275 million from David Morgan but they did not purchase the actual patented IP that underlys it. That IP is owned by Valuclick and Modavox, both having filed patent infringment suits. A quick read of recent motions for sanctions in the Modavox case paints a devastating potential outcome for Armstrong and AOL.

    There appears to be a still yet undisclosed major material liability looming in AOL's future that could result in damages up to maybe as much as half of their entire $2.2 billion market valuation. When analysts learn of this pending issue, I don't expect Merriman is the only firm issuing a sell rating.

    Armstrong intends to be a 21st century content company. How? If they lose the ability to leverage Tacoda's technology and can't target content to users, all the content in the world is useless, it can't be monetized.

    Despite what Armstrong says and does, he is on a slippery slope. He may have been placed upon it by the incompetence of those who came before him, but it doesn't mean he won't also be hurt along with AOL shareholders when he falls down it.

    Anyone who hasn't read the recent filings in this case and owns AOL shares, you owe it to you own financial well being to do some due diligence on where it stands, the relevance of Tacoda's tech to AOL's business and just what could happen if Carol Bartz or another AOL competitor buys the patented technology first.

    Armstrong is a modern day Superman, no doubt about it. Problem is these patents he desperately lacks are the Kryptonite.

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    • The past may be coming back to haunt us. Look at the Bebo deal, $850 million of our money and now they are trying to sell it for pittance! They just got rid of their head tech guy and head counsel. Are they partially responsible for this liability?

      Odd head counsel is out as a new new fraud alligation arises suggesting they hid material liabilites under Tacoda, a shell corp, when they should have been under AOL. Just one more blow to AOL shareholders. Read the filings, the recent motion and sanctions filings for destroying evidence seems telling. As an AOL shareholder, I'm insulted and sickened.

      Mom always said what does a liar do when caught in a lie? They lie some more dig a deeper hole for themselves. In this day and age of corporate greed, how can they possibly think of not telling us about liabilites that could harm us?

      From my reading, it appears as though the entire future of the company and much shareholders equity is now placed on the shoulders of lawyers. To me, they don't even appear qualified to be litigating this case and may not even be skilled in the art of the technology itself!

      What does this say about AOL's management and why TWX wanted so desperately to get rid of them? Read the bio on their technical expert. Unbelievably, I read somewhere that AOL actually hired an expert that used to work for the plantiff's expert! The plantiff's expert said this about AOL's expert...scary!

      Dr. Alexander’s stated formal academic training is not in Computer Science, or Computer and Information Science; it is rather in the quite different field of Electrical Engineering, and the stated period of his education predates the entirety of the historical development of modern software engineering theory, practice, and education. Even for someone with an advanced background in a different technical field (such as physics, biology, or mechanical, electrical or chemical engineering), years subsequently spent learning computer programming or managing electrical/electronic hardware products or computer programs are not an adequate substitute for formal modern computer science training and do not establish relevant expert credentials comparable to an advanced degree in Computer Science. Any such self- training would need to be regarded as out-of-discipline, incomplete, and ad hoc, thus not qualifying for expert status in the forensic analysis of complex distributed real-time computing systems such as Tacoda’s system. This lack of relevant expertise is further evidenced in Dr. Alexander’s stated inability (Alexander Decl. ¶ 38) to understand why some source code and transaction data are needed to support forensic analysis of Tacoda’s infringement, which may not be immediately apparent to a self-taught computer programmer or business manager but would be apparent to a technical expert with relevant scholarship.

      Our money is hinging on this guy? God help us! Ever heard round hole..square peg? How did Armstrong and team think we shareholders wouldn't eventually learn about this? How could they possibly not think it responsible to disclose it? It's bad enough we might have paid $275 million for technology we need but never bought the damn patents that covered them but what about their fiduciary responsibility to us shareholders to provide transparency?

      I hope the media and analysts don't see what I see. They did a public offering and didn't even disclose what sure now seems now to have been a material liability. If they did keep them from us by masking them within the Tacoda shell corporation, I fear this could trigger a shareholder class action suit. Based on their last financials, its could happen! Hell if I knew all of this and had they told me, I'd at least considered the risk before buying. AOL should not be making decisions that risk my hard earned money, give me the chance to decide based on the relevant facts. Thanks AOL management!

    • Looks like the word about this liability may be getting out amongst some of AOL's institutional holders. How AOL was able to not disclose this patent suit along with some others associated with the purchase of Tacoda is mind boggling. A material liability is a material liability regardless of it's against the parent company or a company they acquired. I guess management thought we'd all just figure it out when we woke up one day to potentially a large piece of the company's market cap being destroyed? We all now own a company whopse online business saw a 19% decline and that is supposed to be the future of the company. On top of it we all recently learn sanctions have been filed against them in one case for destroying evidence amongst other crazy things! Did they really think they could just steal someone elses patented technology and nothing would happen? I'm kicking myself for not selling my small position a week or two ago and very dissapointed that Armstrong has allowed the company to be in this position.

    • Big blow here. You all should read this motion. Possible devastating consequences for AOL and its shareholders the way I read it. This technology is totally foundational to AOL's online monetization strategy.

      • 1 Reply to poncho1899
      • Crap you should read that motion for sanctions against AOL. It's damning! Pretty obvious the technology in question is very valuable to AOL and its online business based on all the willfull things they've done to hide the truth, especially destroying evidence! Leave it to AOL to not even bother disclosing this huge liability to us shareholders. Keep treating us shareholders like mushrooms, keep us in the dark and throw crap on us! New management at AOL following right in the footsteps of old management! Read this filing if you can...we might have a problem Houston.

    • Funny in todays 10q filing, there are no mention of the three material patent infringement suits against AOL by Yahoo, ValuClick and Modavox. They are totally foundational to AOL's ability to monetize its business plan. Look for the shareholder suits when they lose what will probably be all three of them and their shares get hammered because of it. Leave it to AOL to continue to keep sharegolders in the dark regarding major material liabililites! Some things never change!

      • 1 Reply to timsaysnono
      • It's amazing how you idiots keep posting this nonsense. It's also a little sad. Your continued efforts at trying to convince yourself as to the reality of half-baked interpretations is an act of desperation at best. ... and you keep trying to convince yourself ... even when entities such as professional money managers, investment firms, and auditors don't reflect your interpretations ... both sad and pathetic. You should probably stay with CDs and leave stocks to those with less emotion and more sense. But as always, your emotions will not allow you to absorbed this good advice. So sad ... too bad.

    • I can't believe they haven't disclosed this to shareholders yet. Two material lawsuits about technology that is the cornerstone of their entire business? This is the AOL way I guess when it comes to communicating with their shareholders. They love to treat us like mushrooms by keeping us in the dark and throwing crap on us!

      • 2 Replies to azcadie23
      • It's amazing how you idiots keep posting this nonsense. It's also a little sad. Your continued efforts at trying to convince yourself as to the reality of half-baked interpretations is an act of desperation at best. ... and you keep trying to convince yourself ... even when entities such as professional money managers, investment firms, and auditors don't reflect your interpretations ... both sad and pathetic. You should probably stay with CDs and leave stocks to those with less emotion and more sense. But as always, your emotions will not allow you to absorbed this good advice. So sad ... too bad. Wake up!

    • I'll be listening to the conference call! you don't own the technology that nmonetizes your entire advertising initiative? You can't effectivley target your content without it? How did this happen? How much of your revenue depends on this technology you don't own but rely on? How much could this impacts AOL's future and what could the damages be from the multiple lawsuits against you for patent infringement?


    • I wonder if these potentially damaging patent suits will be addressed by Armstrong or he will try and sweep these major liabilities right under the rug like those who came before him. I guess if they get a 500 million judgement against them....then maybe they will have to finally disclose them to us shareholders?

    • With respect to the case against Tacoda, Inc. for patent infringement, depositions of the respective parties' witnesses are in progress. Modavox is focusing upon Tacoda's former software engineers and other persons knowledgeable about Tacoda's technology. Modavox also plans to depose the former and present CEOs of Tacoda and AOL. Modavox is also completing its review of the additional source code produced by Tacoda following Modavox’s recent sanctions motion alleging spoliation of source code and related data. It expects, however, to renew the motion shortly based upon the prior findings of its experts and counsel and the conclusions arising from their review of this latest source code production.


      In Modavox's case against AOL, Platform-A and Time Warner, the parties have agreed upon staying the patent claims until the Tacoda action is concluded but to proceed on the trademark claims. An agreement has been reached to explore settlement and to proceed to mediation before a retired federal judge in respect to those trademark claims.

      • 4 Replies to nycourtwatcher
      • It's really a shame that Armstrong is now forced to ammend such attrocious mistakes made by those who came before him. How do you spend hundreds of millions and not verify that you are also acquiring the patents and IP that are so critical to your business? If nothing else, this is complete negligence on behalf of management. Now it's going to cost AOL more money and worse, if a competitor buys these patents before AOL does, they can be used against us.

        Armstrong's entire business plan crumbles if they can't use Tacoda's technology to monetize content. This isn't a small problem. That third party report on the valuation of the IP stated AOL's damages where 140 million! Based on the sanctions filed against them and destruction of evidence, we could easily get socked with treble damages or over 500 million! That's almost 25% of our entire market cap! I hope someone at AOL has learned something and isn't going to let history repeat itself!

    • That report you linked to stated possible damages already in just the AOL case of 140 million plus or minus and that does not account for possible trebble damages right?

      I'm not an attorney but after reading those sanctions, you'd think trebble damages would be completely applicable.

      That could easily send the damages over 500 million in jus that case alone. What is the current market cap of AOL? Something like $2.5 Billion? So theoretically, that suit alone could wack off over 20% of the entire company valuation.

      Funny thing is analysts with poor ratings on the company still aren't even aware of it. I'll be anxious to see if this comes up at their first quarterly call. I know if I were covering the company, I'd be asking Armstrong for comments on this!

      • 1 Reply to seabreaze745
      • Does anyone also know the status of the Yahoo patent infringement suits against AOL? It's amazing the stock is performing so well in the face of what is now already 3 infringment suits regarding such core technology that AOL is using. AOL is being sued by two companies for the Tacoda purchase stating that Tacoda's tech was stolen from them and Yahoo has filed suits for the purchase of Quigo! Didn't anyone at AOL prior to Armstrong use their head before wasting all of us shareholders money? Pathetic!

    • Some of you make some good points here but let me better educate you on exactly why these patents are so critical to AOL and others. If more people knew the facts, I'd hazzard to guess they'd already been scooped up by now. Regardless, I believe it inevitable.

      The Modavox patented technology is foundational (October 1999 priority date) to key targeted Internet functions, such as advertising, broadcasting and content delivery. The patents cover breakthrough technology invented early in the mass consumer Internet age, placing its invention ahead of the inception of key companies in this space, including AOL’s subsidiary Tacoda. The patents teach of a code module system, designed to automatically assemble content delivery on backend server systems allowing Website publishers using the Modavox method to target content to end-users’ preferences, networks, devices, and installed Internet capabilities from any Website destination. The Patents remain open for additional divisional and continuation-in-part filings.

      Modavox IP Validation:

      The validity of the Modavox Patents is self-evident from a review of the Patent Claims and the Court Record in the Tacoda case. The patents have been referenced as prior art by IBM, Sun Micro Systems, Oracle and other leading technology companies. World renowned technology expert and IP attorney, the late Jack Brown. made a major investment in Modavox in 1999. A number of IP and technology experts have reviewed the Patents and support their validity--including an Orrick competitor, who after IP review offered to work on a full contingency basis (Modavox has declined this offer believing that enforcement success will be achieved without having to give up the large profit percentage typical of full contingency).

      Modavox IP Position in the Internet Domain:

      Modavox’s Patents cover indispensable distribution and delivery aspects of Behavioral Targeting advertisements and content delivery over the Internet and related networks and processor platforms. Behavioral Targeting, as performed today, is simply not possible without employing Modavox’s IP.

      Modavox IP Users/Beneficiaries:

      1. Content Publishers get targeted audiences, expanding the time spent on a given Publisher’s site.
      2. Internet Service Providers (ISP’s) gain system efficiencies by delivering specific content/ads, reducing the bandwidth requirements when providing data to end users using a shotgun approach.
      3. Advertisers receive higher conversion rates because of the targeted nature of their ads.
      4. E-Commerce providers are able to deliver targeted product promotions, increasing their conversion metrics.
      5. Internet Broadcasters are able to deliver targeted programming, which should increase the average viewing/listening time by end-users.

      All of these users and beneficiaries should derive direct economic benefit from Modavox’s IP. Besides gaining added value from higher conversion rates and more efficient use of proceeds in targeting customers, ISPs’ “real estate” value should increase given the added value of using their platforms for advertising campaigns, which should have a direct impact on public market valuation.

      Modavox IP Infringers:

      Modavox has completed extensive infringement analyses, concentrating on the largest players in the business of targeted Web-content delivery, and has determined infringement by AOL, Yahoo, Microsoft, Google, and large e-Commerce players like and E-Bay. A large segment of secondary players have also been identified as infringers. The Modavox Patents are necessary to these organizations’ facilitation of “behavioral” targeted ads and content because the pairing of users and content processes are accomplished in real time using the methods, systems, and code modules described in the Modavox Patents.

      • 3 Replies to sherlockk2010
      • It's amazing how you idiots keep posting this nonsense. It's also a little sad. Your continued efforts at trying to convince yourself as to the reality of half-baked interpretations is an act of desperation at best. ... and you keep trying to convince yourself ... even when entities such as professional money managers, investment firms, and auditors don't reflect your interpretations ... both sad and pathetic. You should probably stay with CDs and leave stocks to those with less emotion and more sense. But as always, your emotions will not allow you to absorbed this good advice. So sad ... too bad. Wise up!

      • Little more info to consider:

        Modavox IP Revenue Generation:

        The Modavox Patents are effectively the gatekeeper for the successful delivery of Behavioral Targeted Advertising and Content on the Internet and/or Mobil Devices employing the Internet. Given the broad range of the Patents, and their foundational status to achieve Behavioral Targeting, we believe the Qualcom model of licensing is most applicable. Applying that model to Advertising projections provided by third-party experts (including eMarketer) shows the following Licensing Revenue generation:

        Patent Valuation Analysis—Online Behavioral Targeting Advertising

        Please see The Kenrich Group’s Valuation Report at the following link:

        IP Patent Portfolio Details:

        U.S. Patent # 6,594,691 “Method and system for adding function to a Web page”
        Application Number: 09/429357
        Publication Date: 07/15/2003
        Filing Date: 10/28/1999
        Primary Class: 709/218
        Other Classes: 707/E17.116, 709/219
        International Classes: G06F17/30; G06F15/16

        U.S. Patent # 7,269,636 “Method and code module for adding function to a Web page”
        Continuation of ‘691 Patent
        Application Number: 10/612480
        Publication Date: 09/11/2007
        Filing Date: 07/01/2003
        Primary Class: 709/218
        Other Classes: 709/224, 709/227, 707/E17.116, 709/228, 709/219, 709/225, 709/217, 709/203, 709/229, 709/223
        International Classes: G06F15/16; G06F15/173

        There are three pending patent applications before the USPTO (one divisional and two continuation applications, all published).

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