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Commerce One Inc.’s legacy could last well beyond its liquidation. The bankrupt business-to-business software maker, which shot to prominence during the tech boom, is selling patents at auction in a case that highlights the changing landscape of intellectual property. Bidders include such heavyweights as Intellectual Ventures LLC. The Belleville, Wash., venture firm, which is run by, among others, former Microsoft Corp. chief technology officer Nathan Myhrvold, has made a specialty of accumulating patent rights across the technology spectrum. The auction of Commerce One’s so-called Web services patents relates to software code the San Francisco-based company acquired when it bought Vio Systems in 1999. The technology links businesses and their trading partners over the Internet, allowing them to order supplies, manage inventories and make payments online. Proceedings were scheduled for Monday in the U.S. Bankruptcy Court for the Northern District of California in San Francisco. Whoever buys the Commerce One assets could seek royalties from companies that sell software enabling such transactions. Alternatively, the patent owners could claim a percentage of the fees users of the technology generate with their applications. Digital rights advocates argue that this would amount to a misuse of Commerce One’s IP, especially since the company had agreed to let other enterprises use its software for free. But John Amster, managing director of ICMB Ocean Tomo, a merchant bank that is representing Commerce One in the sale, defended the company’s right to enforce its patents. “Their intention was to get people to use the code,” he said. The dispute highlights a trend in technology under which companies buy IP not to develop a business, but rather to extract royalties or legal settlements. More broadly, the emergence of IP as an asset class unto itself is spurring players such as Intellectual Ventures, Acacia Research Corp. of Newport Beach, Calif., and BTG plc to raise funds to purchase patents for the express purpose of enforcing their newly acquired rights. Big technology companies have long operated corporate IP programs to file and defend infringement suits. In 2002, for example, IBM Corp. generated more than $1 billion in licensing revenue from its more than 3,200 patents. Now, however, more and more companies and investors are aggressively asserting their rights to acquired or even dormant patents. That’s a problem, experts said, because software often consists of hundreds of minor variations on improvements that, in principle, could be subject to litigation. The risk is compounded because of the relative lack of case law for mediating such disputes. “Intellectual property is an asset that’s long been ignored, but that’s less likely now because people realize how valuable it is,” said Ron Epstein, CEO of IPotential, a San Mateo, Calif., investment bank that advises buyers and sellers of IP. In a securities filing Friday Commerce One disclosed that eight parties have made initial bids of $1 million. Amster declined to comment on how much the company expects to fetch for the patents. But he did say that Commerce One could have realized greater value for the assets before the company filed for bankruptcy in October. Commerce One had hired Broadview International LLC in October 2003 to shop the company, as well as explore other alternatives. “Corporate finance professionals don’t understand the value of IP,” he said. “It’s often ignored when it’s one of the most important assets of the company. If these things are going to sell for a decent price today, wouldn’t it have sold at a better price before?” Craig Millet, a bankruptcy partner in Gibson, Dunn & Crutcher Orange County, Calif., office, said it is typically much cheaper for companies to buy patents than to develop technologies themselves. “IP has developed so widely that it’s become more common for vulture buyers to look for intellectual property portfolios that have not been fully exploited by their owners,” he said. “It takes a very low capital infusion to do that because all you have to do is pay lawyers to enforce the patent.” Danny Fortson contributed to this report. Copyright �2004 TDD, LLC. All rights reserved.

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