Key Online Patents Bought at Auction

SAN FRANCISCO — Bankrupt Internet software maker Commerce One Inc. auctioned off dozens of prized online patents for $15.5 million, potentially provoking a legal scuffle over whether the buyer can collect royalties from a long list of technology heavyweights.

A secretive company called JGR Acquisition Inc. wrested the patents from two other bidders with ties to former Microsoft Corp. Chief Technology Officer Nathan Mhyrvold, who runs a start-up that seeks to accumulate valuable patents.

JGR attorney Mark Mullion of the Dallas law firm Haynes & Boone declined to discuss the company or its plans for the patents sold in a liquidation of Commerce One, a former dot-com darling that collapsed into bankruptcy two months ago.

The wrangling involved obscure patents covering a wide range of administrative tasks conducted online throughout corporate America. Commerce One, now based in Santa Clara, Calif., patented a series of techniques that are widely used by big and small companies to pay bills and buy supplies.

Hoping to build a marketplace for its own software products, Commerce One allowed companies to use the patented techniques without paying royalties. The strategy didn’t pay off, but many companies took advantage of the waiver to shift operations online.

Those that might be targeted for royalty claims under the patents include Microsoft, IBM Corp. and other tech icons, as well as smaller companies.

The Electronic Frontier Foundation, a nonprofit group working for digital rights, intends to contest any attempt to collect royalties from the Commerce One patents, arguing that the company promised not to seek payments for use of the technology in question.

The auction represented a small measure of redemption for Commerce One, which experienced one of the most mortifying meltdowns in the dot-com bust. The company once boasted a market value of $20 billion before sinking into a morass of losses.

Commerce One’s investment banker, Ocean Tomo, approached about 50 companies about the patent auction before settling on eight finalists that agreed to bid at least $1 million for the licenses.

The bidders included two large public companies that demanded to remain anonymous. They withdrew after the bidding climbed above $2 million, leaving JGR and the Mhyrvold-connected entities, Brissac Electronic Holdings and ThinkFire Services USA, to fight it out. If JGR is unable to complete the deal, Brissac can buy the patents for $14.9 million.

In addition to major corporations, many smaller companies are at risk too, because the mere threat of an expensive legal battle could be enough to pressure many of them to enter into licensing agreements. Defending against a patent infringement case can cost millions of dollars -- a bill many small companies can’t afford.

“You might see a strategy where the owner [of the] patents just tries to shake down small companies,” said Jason Schultz, a lawyer for the Electronic Frontier Foundation.

The auction proceeds may leave enough to distribute a small amount of cash to Commerce One’s shareholders. As of Thursday, the firm’s liabilities totaled $9.7 million. Commerce One’s shares closed at 15 cents, down less than a penny, in over-the-counter trading Monday.