Peerflix Picks up Potentially Potent Patent as Part of Makeover
Monday, December 18, 2006
By Michael Liedtke, AP Business Writer | December 18, 2006
http://www.boston.com/news/local/connecticut/articles/2006/12/18/peerflix_picks_up_potentially_potent_patent_as_part_of_makeover/
SAN FRANCISCO --Online DVD trading service Peerflix Inc. is tweaking its business model Monday and may soon be brandishing a new weapon to prod changes at other e-commerce companies too.
Peerflix bought the patent during the summer from Donna Moore, a Danbury, Conn. mother of three children who once dabbled as an Internet entrepreneur. Moore, 46, had already shut down her book-trading Web site by the time she finally received patent No. 6,847,938 last year, prompting her to sell the rights for an undisclosed amount.
Although it doesn't apply to online retailers or Internet auctions that account for a big chunk of e-commerce, the patent may provide Peerflix with a legal lever to ward off direct competition in DVD trading, as well as stake a claim on other Web sites that broker the trading or sale of everything from event tickets to video games.
While Peerflix hasn't gone to court yet to enforce the patent, the Palo Alto-based company already is rattling its saber.
"There would be no reason to own the patent unless we intended to flex our muscles around it," said Billy McNair, Peerflix's chief executive. McNair, who also is a lawyer, believes the patent will cut a broad swath, particularly as more peer-to-peer networks are formed online to swap goods and serices.
A successful attempt to enforce the patent could force the targeted Web sites to change the way they do business or pay licensing fees to Peerflix, which has been subsisting on $10 million in venture capital.
"We view this (patent) as an offensive weapon that adds to the value of our enterprise," McNair said.
But the patent might not be as valuable as McNair thinks, said Jim Malackowski, chief executive of Ocean Tomo, a Chicago-based firm that evaluates intellectual property. Malackowski reviewed Peerflix's newly acquired patent at the request of The Associated Press.
"It's not a pioneering patent fundamental to electronic commerce, but it could provide them with a nice foundation in the marketplace," Malackowski said.
For now, McNair is concentrating his attention on a redesign of Peerflix's Web site that heralds the company's new approach for rewarding the 225,000 registered users who trade used DVDs on the site.
The Peerflix market previously revolved around a virtual currency -- points that are awarded and debited from the accounts of the users involved in each DVD trade. Beginning Monday, Peerflix is shifting to a system that tracks the value of trades in real dollars, giving users an option to cash out their accumulated money at any time.
As it did under the old system, Peerflix will continue to charge a 99-cent commission on each trade.
The new patent signals Peerflix's intention to extend its DVD platform to handle other kinds of trading. McNair is coy about what might be next, but mentions compact discs, video games and books as possibilities.
Buying and selling intellectual property has become a thriving business in itself. Chicago-based Ocean Tomo, for instance, held two separate auctions this year in San Francisco and New York that raised more than $30 million selling patents, copyrights and the domain names of Web sites.
"It's become a very competitive market," Malackowski said. "The nice thing about patents is that it only takes a couple good ones to make some money."