With backing from Fortress Investment Group, Andrea Electronics Corp. (ANDR), Inventergy Global Inc (INVT), and SITO Mobile Ltd. (SITO) have recently made aggressive pushes in the patent monetization space.
The flurry of activity comes after a period in which several Fortress-backed companies have had disagreements arise on their boards because of the terms of Fortress loans, which typically give Fortress a stake in any settlement.
Two directors of Netlist Inc. (NLST) left after a disagreement with management on the direction of the Irvine, Calif.-based company following a Fortress loan.
Crossroads Systems Inc. (CRSD) chose to raise $7 million in a registered direct offering in part to allow it to unwind a Fortress loan; the amount raised was less than the $11.88 million the Austin, Texas-based company indicated it planned to raise in November.
“Fortress is a lender and does not ‘control’ these companies,” said Rob Kramer, the managing partner of Altitude Capital Partners in New York. “They make their own operational decisions.”
Kramer worked for New York based Fortress for 13 months in 2003 and 2004.
Fortress didn’t return an email and telephone call seeking comment for this article.
Bohemia, N.Y.-based Andrea, which is run by CEO Doug Andrea, on Monday announced it filed a complaint with the U.S. International Trade Commission, under section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1337.
The complaint alleges violations of section 337 based upon the importation into the United States, the sale for importation, and the sale within the United States after importation of certain audio processing hardware and software and products containing same by reason of infringement of U.S. Patent numbers 5,825,898 "System and Method for Adaptive Interference Cancelling," 6,363,345 "System, Method and Apparatus for Cancelling Noise," 6,049,607 "Interference Canceling Method and Apparatus," 6,377,637 "Sub-band Exponential Smoothing Noise Canceling System," and 6,483,923 "System and Method for Adaptive Interference Cancelling."
The named respondents include Acer Inc., Acer America Corp., ASUSTeK Computer Inc., ASUS Computer International, Dell Inc., Hewlett Packard Co., Lenovo Group Ltd., Lenovo Holding Co., Inc., Lenovo (United States) Inc., Toshiba Corp., Toshiba America, Inc., Toshiba America Information Systems, Inc., and Realtek Semiconductor Corp.
According to the complaint, the respondents import products, such as desktop and laptop computers, that use the patent protected audio enhancement technology. Andrea has requested that the Commission institute an investigation and, after the investigation, issue limited exclusion orders and cease and desist orders.
Historically, the U.S. International Trade Commission was not a preferred venue for patent monetizers because a complainant needs to show that a domestic industry was being harmed by the importation of the allegedly infringing devices. A few years ago, case law evolved such that licensing was deemed to be a protectable domestic industry (in the sense that existing licensees were harmed by unlicensed importers).
That led to a number of patent monetizers using the trade commission as a "fast-track" form of litigation and also because the ITC can issue an "exclusion order" whereas district courts are unlikely to issue an injunction for an NPE since the eBay / MercExchange case.
“I would guess Andrea is using its pittance of an operating business to present itself as a struggling domestic manufacturer victimized by the alleged infringers,” said an IP market observer who requested anonymity.
“It's all about leverage in a settlement negotiation.”
Corisa Guiffre, Andrea’s CFO, didn’t return a phone call for comment.
Shares of Andrea are currently trading at around 8 cents. They’ve traded between 4 cents and 15 cents over the past year.
Separately, Inventergy, which prides itself on reaching licensing agreements without litigation, was sued by Sonus Networks Inc. seeking a declaratory judgement that Sonus had not infringed on patents owned by Inventergy.
"Since the Summer of 2013, Inventergy has accused Sonus of infringing the patents- in-suit and has demanded that Sonus pay Inventergy a significant sum of money in exchange for a license to Inventergy’s patents, including the patents-in-suit.
"To date, Inventergy has sent at least 35 emails and made at least 10 phone calls to executives of Sonus. The subject of these communications was related to Inventergy’s demand that Sonus pay Inventergy in exchange for a license to Inventergy’s patents, including the patents-in-suit.”
Shares of Inventergy are currently trading at around 62 cents. They’ve traded between 51 cents and $14.98 over the past year.
Inventergy CEO Joe Beyers didn’t return an email and telephone call seeking comment.
Finally, last week, SITO Mobile agreed to be the stalking horse bidder to buy Hipcricket (HIPP) out of bankruptcy for about $4.5 million.
SITO Mobile CEO Jerry Hug said in a interview “we’re a bit unique in Fortress’s portfolio. A lot of the companies you referenced are IP focused. They don’t have an operating business. We’ve got a healthy and growing operating business.”
Hug said when SITO executed its debt agreement with Fortress the use of proceeds was not limited and it wasn’t earmarked solely for IP.
“For us at this stage of our life cycle the Fortress terms were very fair,” he said. “We paid down convertible debt and replaced it with term debt. It was an ideal structure, a financing that was perfect.”
Hug said Fortress also provided its expertise to SITO in terms of evaluating its patent portfolio.
Hug said SITO was interested in Hipcricket because “it’s virtually a mirror image of our operating business” in mobile marketing and advertising and has a portfolio of 26 patents.
“We would look to Fortress to help us evaluate the portfolio as they did with our own.”
Hug said SITO expects other bidders to emerge for Hipcricket and for the auction process to take 4 to 6 weeks.
“It ends up being a transaction for us to get additional clients, client development, a larger sales force and more development and operational support.”
Shares of SITO Mobile currently trade around 30 cents. They’ve traded between 15 cents and 61 cents over the past year.
To reach the reporter responsible for this story, please contact Dan Lonkevich at 707 318-7899, or firstname.lastname@example.org