Local.com Could Slap Free411 and Others with Patent Licensing Fees

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Local search site Local.com was awarded a patent Monday covering voice and mobile directory assistance, as well as the ad model used to monetize those searches. As a result of the U.S. Patent and Trademark Office's stamp of approval, the firm has enjoyed a high-flying stock price. Though implications for other players in the ad-supported directory space are also up in the air, Local.com does plan to attempt to charge competitors with patent licensing fees.

"Nobody really knows what these patents mean," said Sterling Market Intelligence Analyst Greg Sterling. "They're very dense and hard to penetrate."

According to Local.com, the patent covers its lead-generating pay-per-click and pay-per-call ad systems, which serve targeted ads to consumers who use the free business directory or 411 service. Search results and ads are served by operator-assisted calls, SMS or WAP messaging, through automated voice systems, or a combination. Ads can be targeted by keyword or geography.

Some have argued local search users and advertisers experimenting with the relatively new medium will suffer as the industry and courts sort out such patents. But Sterling believes Local.com's most recent patent will have "almost zero impact" on advertisers. "This is all inside baseball stuff...Very few advertisers are going to make any decisions on the basis of this," he continued.

For Local.com, the patent offers security in its potential move into ad-supported SMS-based directory services. At this point, said Local.com CEO Heath Clarke, the firm has yet to run much SMS advertising due to the lack of wireless coverage for the service. However, he continued, "It's only a matter of time before those [SMS] models are underwritten by sponsors." The patent affords the company, investors and potential partners protection in those future endeavors, he said.

Competitors in the nascent free 411 space and their legal teams are doubtlessly going over the newly-awarded patent with a fine-tooth comb. Other players in the free directories and mobile search market include Microsoft-owned mobile search provider TellMe, Google's Voice Local Search, and Jingle Networks's 1-800-Free411.

Jingle Networks already offers SMS-based advertising. According to the Lyn Chitow Oakes, the firm's SVP marketing, Absolut Vodka ran a campaign through the service to promote its pear-flavored libation. The brand ran audio spots alongside directory information in conjunction with SMS-based text ads featuring a drink recipe. Jingle Networks had no comment regarding the new Local.com patent.

Odds are good that Local.com will attempt to garner patent licensing dollars from companies like Jingle Networks. "That's certainly one of the methods by which we could monetize the patents," said Clarke. If conflicts arise, he added, "There's a whole system set up to address those conflicts."

In the end, Clarke believes the industry sector will flourish despite any potential confusion over patents. In addition, he said, "I don't think there will be any deterrent for advertisers."