Juno Sues NetZero, Qualcomm in Patent Dispute

Juno Online Services, Inc. (Nasdaq: JWEB) has filed suit against NetZero, Inc. (Nasdaq: NZRO) and Qualcomm, Inc. (Nasdaq: QCOM) in U.S. District Court for infringement of one of its patents.

According to Juno, NetZero and Qualcomm’s e-mail software uses the same technology that Juno patented in 1998 to enable PC users to view Internet-delivered advertisements while they are not online.

Juno and NetZero are direct competitors in the free Internet service provider (ISP) market, although Juno also offers Internet services with more bells and whistles. The company claims to have three million paying and nonpaying users.

NetZero advertises itself as the largest provider of free Internet service, with more than four million users, ranking ahead of Juno, FreeInternet.com, Alta Vista and others.

Earning Potential

The patent dispute is over technology that prompts a user’s computer to download advertising or other digital information while connected to the Internet and store it for display after the online session is over.

In its suit, Juno claims that NetZero and Qualcomm are producing, distributing and encouraging the use of a version of Eudora e-mail software that uses Juno’s patented offline architecture. The Eudora software’s “sponsor mode” setting enables advertising to be displayed while the user reads and writes e-mail, and it enables users to read and write e-mail offline.

The NetZero/Qualcomm alliance made stock market waves in late April, when Qualcomm took a 10 percent stake in the Internet service company for $144 million (US$). The two joined forces to enable NetZero to use the Eudora mail program, and the two companies now share revenue from the ads that are displayed in e-mail transmitted to NetZero users.

The deal also paved the way for Qualcomm to offer free Internet access to users of wireless communications devices, the companies said. Qualcomm has said that it wants to be a leader “across a wide range of connectivity platforms,” including high-speed wireless, broadband and cellular.

Seeking Damages Plus Injunction

NetZero’s use of Qualcomm’s software threatens Juno’s revenue potential, the suit argues, because the patented technology could bring significant earnings through distribution of ads as well as through licensing agreements with other Internet companies.

Juno said that its costs are “proportional to the portion of a user’s session he or she spends connected, while the company’s advertising and electronic commerce revenues are proportional to the larger amount of time a subscriber spends actually using the Juno service, whether online or offline.”

Juno is asking the court to stop NetZero and Qualcomm from using the new Eudora software and to award damages. “The technology we’ve invented benefits us greatly and could benefit others — but we’re not going to let other companies use it for free,” said Juno Senior Vice President and General Counsel Richard Buchband.

“Juno believes that the value realizable by NetZero and other potential licensees of Juno’s technology over the lifetime of the patent could be substantial,” the company said.

Juno’s patent expires in 2016.