Lycos patent could bring payoff to Carnegie Mellon

Rights are likely to boost Boston company's value

Karen Kovatch
Pittsburgh Business Times

June 22, 1998

OAKLAND -- When Michael "Fuzzy" Mauldin wandered into Carnegie Mellon University's Technology Transfer Office with his technology to search the Internet, Mark Coticchia moved to patent it almost immediately.

Three years later, Mr. Coticchia's action is close to paying off for the college that spawned the technology and the company that owns it.

Lycos Inc., the Boston-based company that licensed Mr. Mauldin's technology from Carnegie Mellon in 1995, was awarded a patent last week that covers "spidering" -- a technology used to search for and retrieve information from various sites on the World Wide Web and deliver it to users.

"Basically, the patent provides them with exclusive rights to practice that technology," said Mr. Coticchia, who heads Carnegie Mellon's technology transfer efforts.

"If others are using that technology," he said, Lycos has "the right to request that they either stop using it or pay Lycos fair consideration in the form of royalties."

Although the patent was awarded to Carnegie Mellon, it technically belongs to Lycos. When the company formed in 1995, Carnegie Mellon gave Lycos the patent for $500,000 in cash, a 20 percent equity stake in the startup and an unspecified percentage of royalties on use of the Lycos trademark for anything other than the company's search engine.

As a result, the university won't see a windfall from the patent, at least not directly.

"All of our consideration for the patent has already been granted to us in the form of upfront payments," Mr. Coticchia said.

As a shareholder in the company, however, Carnegie Mellon could see greater returns on its investment if Lycos stock increases in value as a result of obtaining the patent.

And it could.

Given that many competing search engines, including Infoseek and Excite!, use spidering technology to some extent, the potential exists for the company to generate significant revenue through its patent, from licensing fees or royalty payments.

In 1997, licensing accounted for $4.9 million in revenue -- about 22 percent of the $22.2 million Lycos earned. That could rise if Lycos chooses to defend its patent in court.

The company says it won't pursue such action right away.

"We really have no immediate intentions to enforce the patent," said Tom Guilfoile, vice president of finance and administration for Lycos. "We're just excited that we have it and are weighing our options to see what's the best use of it."

Among the options being considered: defending the patent against competitors or using it as a marketing tool to win contracts.

Defending the patent may bring Lycos financial rewards, but it won't be easy.

"I don't think that everybody would be infringing on it," said Sherri Wolf, vice president of Adams, Harkness & Hill Inc., a Boston-based investment banking firm that follows emerging companies. "For instance, I don't think Yahoo! would be (infringing), because their technology uses human intervention, not spidering."

And waging legal wars could be costly.

Is it a price worth paying?

A year ago, when Lycos was purely a search engine, the answer might have been "yes." But Ms. Wolf believes the company's diversification may have diluted the value of such a fight.

Today, Lycos offers "chat and shopping and create-your-own home pages," she said. "I just think their resources would be better spent elsewhere."

Ms. Wolf believes Lycos would be wise to forgo legal action and instead incorporate its patent into its marketing strategy.

"The fact that they own the technology and were the designers of it can be viewed as a competitive advantage," she said. "And it could help them in terms of winning more deals than they used to."

The company's Mr. Guilfoile concedes that Lycos is likely to use the patent to strengthen its position against competitors such as Yahoo!, AltaVista and others. Beyond that, he isn't certain what actions it will pursue.

"We have a highly defensible position on a very important fundamental technology for the Internet," he said. "Anything over and above that is icing on the cake. We feel we're in a great position no matter what else happens."