Bloomberg News

AOL, Mitek, Nike, Stein Mart, Printex: Intellectual Property

April 11, 2012

AOL Inc. (AOL:US) investor Starboard Value LP (STAVOLP:US) said the sale of patents to Microsoft Corp. (MSFT:US) doesn’t go far enough in solving the Internet company’s problems, urging it to find new ways to extract value from its advertising business.

Starboard asked AOL to return more cash to shareholders and reiterated plans to nominate candidates for AOL’s board, according to a letter from the investor to New York-based AOL today. Starboard first announced its plan to nominate five directors in February.

AOL said April 9 it agreed to sell more than 800 patents to Microsoft and license others in a transaction valued at $1.06 billion, triggering its biggest stock gain in more than two years. The company’s revenue has dropped 29 percent since it was spun off from Time Warner Inc. (TWX:US) in late 2009, putting it under pressure from shareholders such as Starboard that say it needs to find ways to generate more revenue from its assets.

“The announced sale of the patents does little to address our serious concerns with the company’s poor operating performance and substantial losses in the display business,” Jeffrey C. Smith, Starboard’s co-founder and chief executive officer, said in the letter. “Management and the board have been unable to meaningfully improve profitability in the display business and unwilling to consider alternative strategies.”

Maureen Sullivan, an AOL spokeswoman, didn’t immediately return a call seeking comment.

Starboard, which owns about 5.3 percent of AOL, estimates the company’s display-advertising business is losing more than $500 million a year, including $150 million in Patch, a distributor of local news. Earnings before interest, taxes, depreciation and amortization, excluding losses from the display business, would have been $932.5 million in 2011, compared with the less than $400 million AOL reported, Smith said.

The New York-based firm also called for AOL to change a “dismal track record of capital allocation,” after the company said it would return a “significant portion” of the patent sale proceeds to shareholders.

“We do not understand why the company would only return a ‘significant portion,’” Smith said. “Why wouldn’t the company simply return all of the proceeds?”

Mitek Systems Says It Will Fight USAA Patent Infringement Suit

Mitek Systems Inc. (MITK:US), the software developer that has fallen by half since a customer accused it of misappropriating check- imaging technology, said it has the resources to fight the lawsuit filed last month by insurer USAA.

Mitek Systems has “sufficient resources to pursue this aggressively,” Chief Executive Officer James DeBello said in an interview April 9. The San Diego-based company continues to work with San Antonio-based USAA, he said. “We are a core part of the key product offering.”

Mitek’s shares have fallen in each of the eight trading days since March 29, when USAA, which also provides banking and retirement services, filed a federal fraud suit against Mitek.

USAA said it invented the technology to permit customers to use their mobile phones to deposit checks and that Mitek “misappropriated” the information while working under contract.

Mitek Systems will probably have to settle with USAA because it can’t afford a drawn-out legal dispute, Bhavan Suri, an analyst with William Blair & Co. in Chicago, said in an April 3 research note. Mitek had $17.5 million in cash and equivalents as of Dec. 31, according to a regulatory filing.

Mitek Systems has signed eight of the 10 largest banks in the U.S. to use its applications that permit users to remotely deposit checks using their smartphone cameras, DeBello said.

“Mitek invented this technology,” DeBello said, saying the company has the patents to prove its case. “As an innovator of this technology and in the market the longest, we have created the gold standard.”

Closely held USAA, also known as United Services Automobile Association, has 8.8 million customers. The company has been using the technology since 2006, a spokesman, Paul Berry, said by telephone. Mitek Systems was helping with “a small portion,” he said.

USAA provides less than 10 percent of Mitek’s revenue, DeBello said. Analysts had estimated Mitek would almost double its sales to $19.4 million this fiscal year from $10.3 million in the year that ended Sept. 30, 2011.

The patent suit, filed March 29, alleges Mitek infringed five parents, all covering methods and systems for mobile image capture and the processing of checks.

The case is United Services Automobile Association v. Mitek Systems Inc., 5:12-cv-00282-FB, U.S. District Court, Western District of Texas (San Antonio).

For more patent news, click here.

Trademark

Nike Suit Ends With Reebok Ordered to Recall Tebow Jerseys

Adidas AG (ADS)’s Reebok International (RBK:US) must recall New York Jets jerseys and T-shirts with quarterback Tim Tebow’s name on them, a judge said.

U.S. District Judge Kevin Castel in Manhattan signed an order April 9 closing a suit filed by Nike Inc. (NKE:US) and ordering that Reebok offer to buy back jerseys in retail stores and recall any jerseys under its control.

Reebok’s licensing agreement with the National Football League ended March 31, and Beaverton, Oregon-based Nike this month became the official supplier of licensed NFL apparel. Nike sued March 27 to block Reebok from selling the jerseys, which were sold after Tebow’s trade to the Jets.

Castel’s order was issued with the agreement of both sides. Court papers referred to a settlement agreement that wasn’t immediately available. Castel had issued orders blocking Reebok from selling the jerseys as the case progressed.

Nike spokeswoman Mary Remuzzi and Daniel Sarro, a Reebok spokesman, said in e-mailed statements that the companies are “pleased to have reached a mutually agreeable resolution.”

Lawyers for Canton, Massachusetts-based Reebok had argued that the company had the right to sell the jerseys and T-shirts under a sell-off provision of its licensing agreement with Players Inc. (MMMS:US), the marketing affiliate of the National Football League Players Association.

Tebow, 24, helped lead the Denver Broncos to the NFL playoffs after taking over as the team’s starting quarterback last year. He was traded to the Jets on March 21.

Tebow, a Christian who prays on the field after his team wins, was named the most popular professional athlete in the U.S. in an ESPN poll this year. His Broncos jersey was the second-highest selling of all NFL players last season, Nike said in the complaint. Public reaction to Tebow’s sudden popularity has been called “Tebow mania.”

The case is Nike Inc. v. Reebok International Ltd., 12- cv-2275, U.S. District Court, Southern District of New York (Manhattan).

For more trademark news, click here.

Copyright

Stein Mart Accused of Infringing ‘Families Are Like Quilts’ Poem

Stein Mart Inc. (SMRT:US), the Jacksonville, Florida-based retail chain, was sued for copyright infringement by a Texas resident.

Renee Baker, of Chandler, Texas, sued Stein Mart, and several others for infringing the copyright to a poem she wrote in 1989. She incorporated her poem, “Families Are Like Quilts,” into a stitchery project and sells a pattern for the stitchery artwork with the poem.

Stein Mart is accused of selling a pillow that contains “a substantial portion” of her poem. This is done without authorization, she claims, and asked the court to halt this activity.

Additionally, she seeks awards of profits related to the alleged infringement, money damages, attorney fees and litigation costs and asked that the court the destruction of all infringing products and promotional materials.

Stein Mart didn’t respond immediately to an e-mailed request for comment.

Baker is represented by Daniel Vance Thompson of the Law office of Daniel V. Thompson PC of Dallas.

She has also placed a notice on EBay Inc. (EBAY:US)’s auction website noting that from time to time items are placed for sale on that site containing lines from her poem without authorization. She said that auctions violating copyright are subject to cancellation regardless of whether the infringement is intentional. EBay is not a party to this suit.

The case is Baker v. K&K Interiors, 6:12-cv-00251, U.S. District Court, Eastern District of Texas (Tyler).

Printex Gets Another Chance Against Aeropostale in Suit

L.A. Printex Industries Inc., a fabric company that has filed more than 200 copyright infringement cases in the past decade, persuaded a federal appeals court to give its suit against a clothing manufacturer another chance.

Vernon, California-based Printex sued Aeropostale Inc. (ARO:US) in federal court in Los Angeles in October 2008, alleging that the New York-based clothing manufacturer was selling shirts made from fabric that infringed one of Printex’s designs.

The trial court granted Aeropostal’s request to dismiss the case, finding that there was no genuine issue of copying.

Printex then filed an appeal with the 9th U.S. Circuit Court of Appeal. In its April 9 ruling, the appeals court said the lower court had erred in not finding copying.

Writing for the court, Judge Ronald M. Gould said that the Printex design was widely enough distributed and the design in the Aeropostale shirts were similar enough that a jury could find that the design was copied.

The case was sent back to the trial court for further proceedings.

The lower court case is L.A. Printex Industries Inc. v. Aeropostale, 2:08-cv-07085-DDP-E, U.S. District Court, Central District of California (Los Angeles).

Russia’s Interior Ministry Considers ISPs’ Role in Piracy, Porn

Efforts to document the distribution of pirated and pornographic content are being made by the cybercrime department of Russia’s Interior Ministry, the Moscow Times reported.

The investigation is being carried out countrywide, with results to be released within a month, an official of the cyber- crime department told the Moscow Times.

One of the aims of the investigation is to pressure Internet service providers to take responsibility for their customers’ illegal activity, the newspaper reported.

Those who violate IP rights or distribute child pornography can face a six-year prison sentence if convicted, according to the Moscow Times.

Republic of Fritz Hansen, a Danish furniture maker, has taken a novel approach in its battle against copycat designs.

The Allerod, Denmark-based company is the maker of the “Series 7” chair, made from steel and bent laminated wood. The design, which premiered in 1955, is one of the most copied in the world, the San Francisco Chronicle reported.

Instead of filing a copyright infringement suit, the company posted a video on Google Inc. (GOOG:US)’s YouTube video-sharing site March 22. The video shows several chairs labeled “knockoff” and one with a sign that says “Fritz Hansen Original.”

In an effort to prove the inferiority of the knockoffs, a man turns each chair upside down and jumps on the curve connecting the chair back to the seat. Each “knockoff” shatters under the assault, while the original chair withstands multiple attempts to break it.

For more copyright news, click here.

To contact the reporter on this story: Victoria Slind-Flor in Oakland, California, at vslindflor@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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