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Sudden Windfall For 3Com?

Posted on Thursday, Apr 19th 2007

An interesting Patent infringement situation seems to be brewing, with Verizon suing Vonage for some fundamental Voice-Over-IP intellectual property violation, and then a former US Robotics engineer, Michael Musiel, who wrote another patent on similar technology, suggesting that 3Com (which acquired US Robotics) actually owns the patent now.

From Muriel’s email: “I originally wrote up this patent for USR back in early 1996 (US patent number 6,529,501), it is now assigned to 3Com. The whole purpose of this patent was how to address mapping computers, VOIP phone devices, and regular phones to each other using the PSTN and the Internet using central lookup servers to match phone numbers and IP addresses. As far as I can tell, it covers most of the issues that Verizon sued Vonage over.”

A bit of history.

Bob Metcalfe invented Ethernet at Xerox PARC, and subsequently co-founded 3Com in 1979. For a long time, 3Com was a neck-to-neck competitor to Cisco, until under John Chambers’ able leadership, Cisco managed to leapfrog on the strength of a fantastic sales channel, and a super-effective M&A strategy.

Nonetheless, from 1979 until at least the late nineties, a lot of cutting edge R&D on networking technologies used to happen at 3Com. Unlike Cisco, the company was more of an inhouse innovator during those days.

Why do I go into all this history?

Because, my strong hunch is, this situation of 3Com not knowing what they have in their treasure trove of patents and IP, may be happening elsewhere.

I recently wrote about a company called Tessera (TSRA), that has built a great business by licensing its technology and collecting royalties. Their Market Cap is $2 Billion, P/E is 32.54, 2006 revenue is $208 Million, and 2006 profit is $61 Million. Their stock price is hovering around $42. [Disclosure: They have been one of my clients, and I own stock in the company.]

Compare that to 3Com. 2006 Revenue is $795 Million with a $100 Million loss. Market cap is $1.7 Billion, and the stocks hovers around $4.

I for one would love to open that pandora’s box inside 3Com’s IP portfolio and see if I could create a strategy that follows more what I learnt at Tessera!

May be, this Verizon-Vonage situation will unexpectedly and inadvertently shower a chunk of money (some say, $58 Million, although is Vonage in any condition to pay these large sums of money?) on 3Com, and wake them up to the potential of doing things differently, that may have greater rewards, a vastly more profitable business model, and significantly less risk – something Wall Street keeps penalizing them for!

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