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Steve Kanaval was an original member of the Morgan Stanley (MS.NYSE) Futures Task Force at the Chicago Mercantile Exchange and worked in the S&P 500 as a market maker from its inception, and was an original Index and Option Market seat holder at the Chicago Mercantile Exchange (CME.NYSE) in... More
  • Two Small Stocks with Potentially Big Intellectual Property 0 comments
    Aug 29, 2010 11:32 PM | about stocks: VHC, RMBS, GOOG, YHOO, AAPL

    Recently David Sterman "StreetAuthority" wrote an excellent article titled "3 Stocks with Potentially Lucrative Patents".

    In his story he talked about three companies he believed had patents that could prove to be valuable when enforced through legal efforts, not limited to settlements and or licensing fee's. Those companies were VirnetX Holdings (AMEX: VHC), Rambus (Nasdaq: RMBS) and InterDigital (Nasdaq: IDCC)

    In his article he wrote, "When communications software firm VirnetX Holdings (AMEX: VHC) released quarterly results last Monday, investors may have thought the company's press release had a glaring error. Sales, which had never exceeded $21,000 in any prior quarter, suddenly exploded to $200 million. It was no misprint. VirnetX finally got a nice payoff after several years of lawsuits regarding patent infringements.

    Other companies that sue to get royalties are also hopeful for similar windfalls. And when these companies prevail, profits can grow quickly, as patent and royalty income often flow straight to the bottom line.

     

    So how can investors profit from companies with potentially lucrative patents? I've uncovered three companies sitting on potential gold mines in terms of their intellectual property."

    David went on to espouse the virtues of all three companies IP, but of particular interest to me was VHC because of its relevance to the massive mobile movement which has attracted the recent full attention of Google (Nasdaq: GOOG), Yahoo (Nasdaq: YHOO), Apple computer (Nasdaq:AAPL) and many others. Everywhere you turn, articles abound about the proliferation of mobile and how its growth is projected to out pace that of the PC movement itself.

    This led me to one other small company I think could have easily earned a spot into his article. Albeit a little smaller and still not yet vindicated in its current and ongoing patent disputes against both AOL and Yahoo, it's a small company with a patent portfolio that could spell game changer for many of these larger players as they try to capture a piece of the $1 billion-and-growing mobile advertising market.

    The company is Augme Technologies (AUGT.OB) and they own US Patent Numbers 6,594,691, patent No. 7,269,636 and just issued patent No. 7,783,721 resulting from an original October, 1999 patent filing with the U.S.P.T.O. protecting their Inventions through 2018. The Augme patents cover a two-code module system that enables any networked, delivered content to be customized based on end-user criteria. These patents will allow a single webpage to have an infinite number of tailored service responses that allow individuals to receive content that is customized to their own computing environment, connectivity, bandwidth level, geographic location, gender, age, or any other targeting criteria such as behavioral marketing data. The two-code module system enables the following functions, among others, within web pages delivered to Internet-connected devices:

    ·  Mobile device and browser detection

    ·  Mobile device specific content rendering

    ·  Customized content delivery

    ·  Geographic targeted content delivery

    ·  Behavioral targeted content delivery

    ·  Customized advertising delivery

    ·  Targeted video delivery

    ·  Consumer centric e-commerce environments

    So essentially Augme's Patents appear to cover the indispensable distribution and delivery aspects of customized, including Behavioral, Geographic and other forms of targeted advertisements, content delivery over the Internet and related networks and processor platforms. Behavioral targeting, Geographic targeting and other forms of content targeting, as performed today, would appear not possible without employing Augme's IP.

    This is interesting because in a recent article by Pete Barlas in Investors Business Daily, "Online Ad Market Shift Seen", he makes the following statements based on a new forecast by Borrell Associates.

    "A changing of the guard might be coming for the U.S. online ad market, with the growth drivers switching from search and display ads to local and behaviorally targeted ads"

    "The company says total U.S. online ad revenue will rise 13.8% to $51.9 billion in 2011 from the 2010 total. But local online ad revenue will outpace that growth, rising 17.5%."

    "The new — or at least newer — things are better targeted local ads and ads that target behavior."

    "Instead of banner display ads, advertisers will move more to behaviorally targeted display ads that match users' interests with products and services they recently looked for online."

    "In 2011, sales of targeted display ads will skyrocket 60% to $10.9 billion"

    "Advertisers are waking up to the fact that nontargeted display ads just aren't as effective in selling products or increasing brand awareness as targeted ads"

    I think you can smell what I'm cooking here and why Augme could have easily been number four in David's original article. 

     

    In light of Paul Allen's just filed infringement suit against Apple, Google, Facebook, Yahoo, AOL, Ebay, YouTube and several others, based on patents from the similar time frame, the big boys are now realizing that patented IP is really the one asset that provides exclusivity as well as a barrier to entry. IP like that of VirnetX and Augme can literally exclude a company's participation in multi-billion dollars business verticals causing companies like Microsoft to pay big money to avoid the risk, just as they did recently to VirnetX.


    Foundational technology patents are few and far between, getting new patents issued is tough and time consuming work. With mobile being the next great technological frontier, companies who now find themselves in the fortunate position of owning some of this rare and relevant IP are worth taking a hard look at. Just Friday, VHC shares closed up 15% on almost 4X's average volume. This could be a precursor to a larger move as the institutional crowd searches for companies like them and Augme who own IP possibly worth many multiples of their current market values.  



    Disclosure: No Positions
    Stocks: VHC, RMBS, GOOG, YHOO, AAPL
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  • Top picks AUGT up 15% and VHC up 3% today and hitting yearly highs. Its been a great week so far.
    Sep 9, 2010
  • Both intellectual property plays up heavy today. AUGT up 15% and VHC up 8%.
    Sep 8, 2010
  • Top Intellectual Property Plays VHC and AUGT both up 5% today
    Sep 7, 2010
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