AOL Not Ready to Spin Off? The case of the missing source code
Date: November 3, 2009 3:57 PM
Author: Editors Desk
Tags: Services, Technology The case of the missing source code

I have been watching this story for more than 4 years and it seems we are coming down to brass tac’s…

As Time Warner and AOL get ready to part company and go their separate ways after a the acquisition of AOL by TWX…its seems it is destined to mark the height of valuation stupidity. But hang on to your hats as the team can’t seem to shake looming errors.

A lawsuit filed back in August of 2007 may stand in the way of these painful final steps.

A small company called Modavox who has sued them for patent infringement of their Intellectual property in the area of Behavioral Targeted Marketing may be able to delay the spin off. Recent filings by Modavox asking for sanctions tell a telling tale of what has been going on behind the scenes for the last two years.

Although the case involves patent infringement, a highly technical subject matter, the recently filed motion by Modavox’s attorney’s requesting sanctions are a rather simplistic. The motion suggests AOL / Tacoda and their attorney's repeatedly and intentionally failed to comply with general court orders pertaining to discovery procedures, findings of spoliation and spurious production and destruction of code and perjury amongst other things. The filings illustrate a clear picture of the AOL / Tacoda’s defense being one of stalling and refusal to provide the court required documentation.

Even under oath where the Tacoda lead software engineer swore that all the documentation was delivered, they continue to supply more data as Modavox points out deficiencies in their documentation. Not only is there a clear pattern of intentionally delaying the proceedings, but there is also documentation that not only was key data not retained after the suit was filed, but was intentionally destroyed. This clearly would cause one to wonder why they intentionally destroyed something they had recently purchased for $275 million that could have provided them an irrefutable defense to the infringement case itself - which they were under a legal obligation to preserve. To date Modavox is still claiming a failure on the part of Tacoda to deliver the required source code.

As part of the sanctions Modavox is requesting a jury instruction that Tacoda destroyed portions of the source code that existed in 2007 when this motion was filed. They are also asking the court to issue an order that in defending this action Tacoda is precluded from asserting it has not infringed Plaintiffs patents in reliance upon source code or metadata it has failed to produce as of the date of filing this motion. Full or partial granting of any of these requests could spell game over for AOL/Tacoda.

The court has set a timetable that allows AOL/Tacoda two weeks from the time of this filing to respond and then another week for Modavox to respond. As the clock ticks on the Time Warner/AOL spin off, so ticks the time on the possible imposition of devastating sanctions against them in this case.
I must assume that AOL’s potential injunction against the use of Tacoda’s targeting abilities could all but cease the company’s ability to monetize its content. Isn’t one of their big objectives to become a content company? Talk about a disclosure, how do company attorneys or shareholders even quantify this potential risk in the face of a forthcoming IPO?

All of this causes me to wonder if the only spin coming from Tim Armstrong and AOL in the near term will be the spin they place on this material lawsuit as they try to spin off AOL and its liabilities to the public.

The story gets curious-er and curious-er….