Miva Settles Patent Suit, Reports Net Loss

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Miva resolved its patent dispute with Yahoo Search Marketing, eliminating one hurdle in its return to profitability. Yet several other stumbling blocks remain. Miva reported a net loss for the third quarter in a row yesterday.

Net loss for the quarter was $125.2 million, or $4.08 per share, which includes a $119 million impairment charge as well as settlement charges from the Yahoo lawsuit. This compares to net income of $3.6 million, or $0.15 per share for the same period in 2004. Revenue was up 76 percent to $48.8 million, from $27.8 million in the year-ago quarter. The company had expected Q2 revenue to be $40 to $50 million and anticipates full-year 2005 revenue to be $185 to $200 million.

As it has for the past two quarters, Miva attributed its poor financials to a February decision to improve the quality of its network by eliminating underperforming distribution partners.

The company began cleaning up its network in November, vowing to stop showing online gambling ads in the U.S. It announced a plan in February to focus on distribution partner quality rather than the volume of traffic partners generate. Part of that effort includes eliminating distribution partners that don't produce conversions. The company expects that decision to continue to affect traffic and revenue over the rest of the year.

Early yesterday, Miva closed the book on its legal woes with Yahoo The company agreed to pay $8 million to settle a four-year-old patent dispute over who owns the bid-for-placement technology that drives paid search advertising. In exchange for the cash, Yahoo agreed to drop all claims in the lawsuit. Miva will also pay an undisclosed ongoing fee to Yahoo for a non-exclusive license to certain Yahoo patents. Miva declined to clarify how much that fee would be, or how often it would be paid, citing confidentiality clauses within the settlement agreement.

The dispute centered around the bid-for-placement business model and technology used by both Yahoo's former Overture division and Miva's former FindWhat network. In July 2001, Overture was granted U.S. Patent No. 6,269,361, "System and method for influencing a position on a search result list generated by a computer network search engine." Yahoo claimed the patent protected its bid-for-placement products and another patent it holds protected its account management tools.

Miva should save significant legal costs going forward. The company estimated it was spending about $1 million a year on legal fees in the period before the trial began, and faced much more than that once a trial started this spring. This quarter, the company spent a combined $3.3 million on its rebranding as Miva and litigation efforts -- both areas that should see significantly less spending going forward.

Though legal questions have long swirled around the validity of the patent, the issue was never tested in court. The suit against Google was settled in August 2004, just prior to Google's IPO, for 2.7 million Google shares, worth $270 million at the IPO.

The jury portion of the Miva-Yahoo suit resulted in a May mistrial. While the jury found Miva had infringed on several parts of the patent, it also found 6 of the patent's claims invalid and failed to reach a conclusion on 12 others.