Neomedia Signs Kraft, others to license patents.

 barcode

  Neomedia, a company that owns patents for bar code technology, has recently been able to negotiate licensing agreements with several companies including Kraft, and a competitor - SpyderLynk.   Although  Neomedia has been trying for a long time to monetize its patent portfolio it has been operating at a loss in recent years, and borrowing and diluting its stock by converting debt to equity to sustain its approach. 

   The company hoped to reach break-even by the end of this past year.  In an interview last month, CEO Laura Marriott stated "We are very hopeful that we will reach self-sustainability by the end of 2012.  This means that we would be able to fund our operations with the cash that is coming into the business through IP licensing and 2D Core services, rather than having to seek financing. We have cut our costs considerably over the two years that I have been CEO and are getting ever closer to our goal of self-sustainability.  I believe this significant progress in terms of both cost cutting and revenue growth translates to much more positive financial statements than we have had in the past."

     The most recent financial statement available - for the third quarter of 2012, was not so sanguine, stating "We currently do not have sufficient cash or commitments for financing to sustain our operations for the next twelve months."    ( See EDGAR filings http://www.sec.gov/Archives/edgar/data/1022701/000114420412061699/v326326_10q.htm ) 

      The value of these licensing agreements remains unclear.   From a Neomedia press release:  "Boulder, CO, November 27, 2012 – NeoMedia Technologies, Inc. (OTC BB: NEOM), pioneers in the mobile barcode industry, today announced that it has granted Kraft Foods Group , Inc (NASDAQ: KRFT), a worldwide, non-exclusive license to NeoMedia’s patents related to mobile barcode resolution. In addition, Kraft has selected NeoMedia as an approved vendor for mobile barcode management solutions."

   So, Kraft approved Neomedia as a vendor,  but was there any actual cash compensation for patent licensing?  Marriott declined to comment.   

As to the value of the SpyderLynk licensing,  the revenue seems to have been de minimus.    As reported in the Denver Business Journal - The company doesn’t believe it infringed upon NeoMedia’s patents, but the cost of defending itself in court “would have far exceeded the cost of licensing the technology,” said Nicole Skogg, founder and CEO of SpyderLynk.   

      The bottom line is that while management may enjoy the sight of a couple trophies hanging over Neomedia's corporate fireplace, the agreements don't seem likely to generate much benefit to the shareholders.  The stock price is below one penny per share according to MarketWatch.  http://www.marketwatch.com/investing/stock/neom

    Is Neomedia's appraoch a sutainable strategy?   My personal experience is that it may not be so.  There was a company that once tried to enforce a patent to collect revenue from any item sold over the Internet - this was back in the 1990s.  I happened to be the recipient of a threatening letter from the law firm representing that company, as my company was selling bar code equipment over the Internet.  The company was able to extract  money from a few companies for a couple years, before enough companies banded together and legally defeated the patent.    
      In another patent battle,  way back in the 1980s, I recall receiving a letter from a certain bar code manufacturer, threatening my company because we sold a bar code reader that they claimed infringed on one of their patents.  While it was within their rights to send that letter, I resented being threatened - as did many other resellers, and did not touch their product line for a decade - even though they later came and asked us to sell it.   They won their patent fight, but damaged their relationship with the reseller channel, and ultimately went into bankruptcy.   
 
(Update - Jan 10th 2013 - I neglected to include a link to this insightful article in Wired Magazine, called The Patent Problem - It's well worth the time to read.)
    
Time will tell us if this is a hollow or sustainable victory. 
 
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