Money-Losing Modavox Sues Yahoo! for Patent Violation

Online media distributor Modavox Inc. (MDVX.OB) is suing Yahoo! Inc. (YHOO) for patent infringement.

Modavox, whose services include providing platforms for Internet TV and radio broadcasting, says Yahoo! is illegally using technology protected under its patents for adding functions to Web pages. The Tempe, Ariz.-based company says it has suffered “irreparable harm” and wants the courts to prevent Yahoo! from making money through the unauthorized use of Modavox property. Modavox further seeks monetary damages, which it did not specify but said must be “no … less than a reasonable royalty.” Plus, if Yahoo! is found guilty, Modavox said it could collect up to three times actual damages. Finally, Modavox also wants Yahoo! to pay attorneys’ fees and court costs, as well as “any other remedies that the court deems equitable and just.”

Yahoo! did not respond to a request for comment but in these situations; it is typical for the company being sued to refute the allegations and vow to fight them.

It seems odd that Modavox has waited until now to levy its allegations. The company has been in operation since 1999. Yahoo! was founded in 1994. Perhaps to quell speculation, however, Modavox told the Securities and Exchange Commission just five days ago it hired a consulting firm this year to identify the estimated value of its patent holdings, as it works to develop its self-dubbed “patent monetization and licensing strategy.”

Modavox noted it has shared the consultant’s recent findings with “a targeted defendant in a currently pending patent enforcement case” in hopes of reaching a settlement. The company did not say whether it has given the report to Yahoo! as well, although it says it first notified Yahoo! of patent infringement in April. To that end, Modavox has several suits in the legal pipeline, since it has spent much of this year shoring up its “patent enforcement strategy,” as it noted in a Sept. 1 press release.

It can’t be coincidental that the stepped-up litigation comes amid a string of financial losses for Modavox. In the quarter ended Aug. 31, the company lost $1.48 million, about $1.16 million more than in the year-ago period; in the quarter ended May 31, it lost $1.26 million, compared to $327,142 the year before; and for the 2009 fiscal year ended Feb. 28, it lost a total of $5.3 million, as opposed to losses of $3.3 million in fiscal 2008.

Nonetheless, Modavox executives are sticking to their guns.

“Our patented technology is foundational to a specific targeted Internet advertising delivery method utilized by the Yahoo! advertising business and used previously by the targeted advertising delivery operation of Blue Lithium, purchased by Yahoo! in September 2007,” Nathaniel Bradley, Modavox’s CTO and product officer, said in a prepared statement. “Third-party expert analysis of Yahoo!’s systems, as well as our own internal studies, provide a substantial basis for our infringement contentions.”

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