Post-bankruptcy, Interactive Networks banks on patents

After sorting out a legal mess, the company hopes to collect royalties from Internet and interactive-TV firms that may unknowingly have infringed on its patents.

The list of potential licensees includes major players such as Microsoft, Intel, and NBC, which is a shareholder in Interactive Networks, now based in Belmont, California. Microsoft owns WebTV, Intel has pushed its Intellicast technology, and NBC has its own interactive-television plans.

In its heyday, Interactive Networks burned through $155 million in capital from investors such as TCI, Sprint, NBC, and Motorola.

After settling litigation earlier this year over a $20 million loan from those investors, chief executive Bruce Bauer is ready to collect patent licensing revenues from companies--particularly in multiplayer online games or interactive advertising--that use technology Interactive Networks has patented.

"The value to the company is primarily its assets and intellectual property--its suite of patents," Bauer said in an interview. "We have been working for more than a year strategizing our patent enhancement and patent development."

Interactive Networks' pursuit of patent revenues could rekindle a debate that has raged about patents and growth of new mediums such as the Internet. Some argue that patents simply slow development, while others suggest they let inventors profit from their creations that others might merely copy without patent laws.

Last month IN hired one of the company's original technology gurus, Robert Brown, to become its chief technology officer--and employee No. 4. His mission: Turn the patent portfolio into revenue.

"When multiparticipants play along with games of skill or chance, such as live sporting events, game shows, and other programming events for prizes or scoring, that technology may fall under IN's patents," Bauer said last month in a statement. The goal is to license the patents or strike strategic alliances.

Interactive Networks holds at least six patents today and part of Brown's mission is to apply for additional ones. Bauer describes a 1986 patent, 4,592,546, as the basic patent underlying Interactive Networks' technology. It is titled "Game of skill playable by remote participants in conjunction with a live event," and cites as an example several remote users playing a game while watching a televised football game. A key element is using two separate forms of communication.

The other foundation patent is 5,083,800, issued in 1992. It covers computer games that involve a one-way communications channel like a FM radio signal or phone line.

The interactive-ad patent, 5,643,088, involves integrating interactive advertising with an online game.

Interactive Networks today has roughly $10 million in the bank, as a result of settling the last litigation over the $20 million loan. The lenders agreed to convert the debt into shares in the company after IN filed a voluntary bankruptcy.

According to filings with the Securities and Exchange Commission, after the lawsuit settlement Interactive Networks' largest shareholder is AT&T, which acquired a 20.1 percent interest in Interactive Network when it acquired TCI. NBC owns 9.4 percent, Gannett 5.7 percent, and founder David Lockton, who is no longer affiliated with the firm and is still involved in legal disputes with the company, 1.7 percent.

Bauer hopes to hire a top law firm on a contingency basis to pursue patent infringers and collect royalties from them.

He also has created an advisory board, including Gregg Freishtat, chief executive of VerticalOne, that is helping Interactive Networks collect licensing revenue.

"A lot of the vision of how the services and products Interactive Networks brought to market in the set-top box is applicable to the Internet market," Freishtat said in an interview.

"Many of the companies that entered into the Internet and enhanced-TV arenas...are potential licensees of our intellectual property," Bauer said in a statement announcing the advisory board.

Interactive Networks has one licensee from the company's earlier incarnation, London-based Two Way TV, a subsidiary of giant Cable & Wireless Communications. Two Way TV is planning to roll out its service in the United Kingdom over the next 12 months, Bauer said, and he's interested in a joint venture to bring the service into the United States.