Local.com

DJ IN THE PIPELINE: Local-Search Cos Aim Patents At Big Rivals

By Riva Richmond
Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--In the world of local Web searching, behemoths may be at
the mercy of minnows.

Several small technology companies are trying to use their intellectual
property to secure a spot at the center of the emerging business of local
search, which are advertising-supported online services that connect consumers
with local businesses via personal computers and mobile devices.

These companies, which include Local.com Corp. (LOCM) and closely held Geomas
(International) Ltd., see a lucrative opportunity in collecting patent royalties
from the many large and deep-pocketed Web-search and Internet yellow-pages
companies that are rushing to grab share in this hot but fragmented market. They
could also reap a windfall if a would-be licensee prefers the role of acquirer.
Alternately, they could dump resources into litigation only to walk away
empty-handed if the large players win a fight.

Local.com's and Geomas' gambles underscore the rising importance of patents,
and intellectual property more broadly, in the technology industry, where
companies regularly rise to prominence out of nowhere on the strength of a good
idea. Indeed, financial success and corporate valuations are increasingly tied
to tech companies' abilities to innovate quickly and capitalize on their
inventions.

"By announcing (their patents) they're trying to boost their value in the
marketplace," says Greg Sterling, founder of consulting and research firm
Sterling Market Intelligence. "Local.com has, obviously, done that literally."

Shares in Local.com, which operates a local search engine, skyrocketed early
this month after the company said it was awarded two patents that appeared to
cover broad local-search technologies: one for the retrieval of data using
location information and another for responding to queries with ads over mobile
messaging. The awards sparked frenzied blog and media speculation about a future
rich with royalties, on the model of Qualcomm Inc. (QCOM), which has built a
significant business licensing its wireless technology, or a big buyout by a
competitor like Google Inc. (GOOG).

An array of companies play in the local-search arena, from search engines
operated by Google, Yahoo Inc. (YHOO) and Microsoft Corp.'s (MSFT) MSN to
yellow-pages publishers to independent community-driven sites like Yelp Inc.
However, consumers likely make most local searches - queries that include
location information, such as city and state or zip code - in the major search
engines, Sterling says.

A Google spokeswoman said the company's initial review of the Local.com and
Geomas patents suggests "they won't have a significant effect on our business."
Both Yahoo and Microsoft declined to comment.

The matter may ultimately be resolved in court. Local search "is probably the
next big area of major litigation relative to the big engines," says Matt
Naeger, general counsel at search-marketing firm Impaqt Inc., though he said the
engines may decide it's unwise to "risk the future of your business on
potentially being in violation when you could sign a deal at what is a nominal
expense."

Indeed, local search's star is rising as consumers increasingly use the Web to
find and research businesses in their own communities - the restaurants,
hardware stores and doctors' offices where they ultimately spend much of their
money. In the next few years, many believe they will use their mobile phones to
do so, too.

Yet these local businesses still advertise in print yellow pages and local
publications primarily - to the tune of $30.5 billion in print ads globally last
year, according to The Kelsey Group analyst Matt Booth. Local-search players are
betting a sizable piece of that spending will move online in the coming years.
Booth estimates global local-search and Internet yellow pages spending will
reach $10.6 billion in 2011, up from $3.8 billion last year.

This backdrop explains why Local.com's shares more than tripled early this
month on its patent news to a peak of $13.74 on July 6. The shares lost ground,
however, after several of large shareholders, including a Hearst Corp. unit,
took steps to cash in. Hearst and hedge fund SRB Greenway Capital LP, among
others, have filed to sell the majority of their holdings, representing more
than 30% of Local.com's outstanding stock. And Hearst has sold nearly 1 million
shares for about $9.4 million. Local.com shares recently traded at $8.72.

The true value of the patents remains unclear. Many companies are innovating
in this area, and many have filed or been awarded patents, including big players
like Google and Microsoft, and small companies like free 4-1-1 service Jingle
Networks Inc. and pay-per-call ad provider Ingenio Inc.

Local.com Chief Executive Heath Clarke says he believes the company's patents
will prove important and yield licensing revenue. Its search patent, he says,
covers "a standard method" for finding geographic information, such as
addresses, on Web pages and using it to determine relevant query results. And
while the mobile patent covers a task that isn't in wide use today, it's likely
to "become a very standard way of doing business," he says.

Local.com hasn't yet begun contacting companies that may be using the
technologies, and Clarke declined to name any potential infringers. "We're
looking at how we best go about ensuring our IP is protected," he says, and
expect to have a "process" in place by the end of the quarter.

As for an acquisition, Clarke says Local.com has received multiple inquiries
from potential buyers in recent years, but no new interest since the patent
announcements. "I think we're generally a desirable entity," he says. "We're
just busy building our business. That's our focus. I don't think that will
change."

Meanwhile, rival Geomas, a London-based startup, is trying to build a business
primarily on licensing its patented local-search technology, though it also aims
to launch its own search engine. Its patent covers a technology, dubbed GeoTag,
that organizes and accesses search information based on geography and that the
firm claims is broader than Local.com's.

Geomas declined to name companies who are licensing GeoTag, but lists on its
homepage 105 that have cited the patent as prior art, including AT&T Inc. (T),
Microsoft and Time Warner Inc.'s (TWX) AOL unit.

"GeoTag is a foundational technology," says Jason Galanis, Geomas' principal
financier and investor. "We can't identify another way to search (local)
information other than in the manner we've described in the patent."

In November, Geomas moved to enforce its patent by filing an infringement
lawsuit against directory-assistance company Idearc Media Corp., a spin-off of
Verizon Communications Inc. (VZ) that operates the Superpages.com Web site.
Idearc declined to discuss the suit, but court filings show it denies the
allegations and is fighting the suit on jurisdictional grounds.

"Sometimes you go after one of the players," says John Rabena, a patent
attorney at Sughrue Mion PLLC. "And if you're successful in a lawsuit, then
other companies - potential licensees - will sign up more easily."

-By Riva Richmond, Dow Jones Newswires; 201-938-5670;