If you haven’t already heard of NeoMedia Technologies of Fort Meyers, Fla., it may be time to acquaint yourself. Not only is the micro-cap company buying up mobile marketing startups at a breakneck pace, but it has also assembled a portfolio of wide-sweeping patents concerning cell phone marketing.
And it isn’t hesitating to use the intellectual property as a weapon against any company that it believes has infringed on its acquired patents. “People have to come under our umbrella. They’ll need to license our patents or be a part of us,” says CEO Chuck Jensen.
First, the shopping spree. Since the beginning of February, NeoMedia has paid about $52 million in cash and shares for five mobile marketing companies, including Boston-based Mobot; London-based Sponge; Gavitec, based in Wurselen, Germany; HipCricket, based in Essex, Conn.; and Munich-based 12snap, the only venture-funded company of the bunch. 12snap had raised nearly $45 million from a long list of investors, including BlueRun Ventures, Goldman Sachs and Apax Partners.
Little wonder, too. “There are a lot of interesting applications and content that could drive usage in the mobile marketing space,” says New York media analyst David Bank of RBC Capital Markets. Though exits are hard to come by, Banks believes the mobile marketing industry is in its early days, and that growth lies ahead.
The good news for VCs who might be interesting in promoting the sale of their mobile marketing startups is that NeoMedia will “continue to look at what’s the best thing for our shareholders,” says Jensen, who strongly hints that NeoMedia isn’t done gobbling up startups.
The bad news for VCs with mobile marketing startups in their portfolios is that NeoMedia has 27 patents that it has used to develop a technology platform. And the patents could prove problematic – or at least expensive – for competitors in the space. Except for SMS and MMS, NeoMedia’s technology platform – which it has branded under the name PaperClick – anticipates almost every conceivable way to make a purchase, enter a contest, obtain a rebate, or register a product online via a cell phone.
For example, when a consumer snaps a picture of a UPC or other bar code to enter a contest or learn whether or not a product is cheaper elsewhere, he or she is executing a process that was patented by NeoMedia, the company claims.
In fact, beginning in 2004, NeoMedia began filing patent infringement lawsuits against such companies as AirClic, Scanbuy, LScan Technologies, Virgin Entertainment Group, Virgin Megastore Online and Virgin Megastore.
In its suit against the Virgin properties, NeoMedia alleged that the Virgin Megaplay Stations located in Virgin’s Megastores infringed NeoMedia’s patents by using their own proprietary technology to allow customers to scan UPC codes from in-store CDs and DVDs to access online information like music and movie previews. Jensen says that Virgin is “settling that lawsuit with us, and licensing our technology.”
AirClic also settled with NeoMedia, before going into a different business, according to Jensen. Meanwhile, NeoMedia is still embroiled in a suit with ScanBuy, while LScan is now out of business.
Jensen says that NeoMedia will sue again if it needs to, and it has the borrowed capital to do it. Thanks largely to its patent portfolio, NeoMedia has a $100 million line of credit through Cornell Capital.
The company hadn’t always enjoyed good times. NeoMedia went public in 1995 – as a systems integration company – and it was hammered by the tech crash, slicing its 150-strong staff of employees down to about a dozen. Its sales also slid from a high of $25 million to just $1.7 million in 2004.
But it’s using its current line of credit to grow through acquisition. Its recent acquisitions have brought its worldwide workforce back up to 165. And it wants to keep shopping.
Jensen is no doubt encouraged by the recent $612.5 million deal that Research in Motion, the Canadian maker of the ubiquitous Blackberry device, agreed to pay to settle a patent dispute with Virginia-based NTP.
That’s a shame, says Andrew Goldfarb, a managing director at Globespan Capital Partners in Boston, who sits on the board of mobile marketing startup m-Qube. “NeoMedia and its ilk are cause for concern and certainly not a positive development. It’s a big problem for the startup community that there is this system that’s being engineered – and I use that word ironically – against the original intent of patents.”