Why Color Both Failed And Could Still Come Out Millions Of Dollars Ahead: Patents And Trademarks

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Updated. It’s been a crazy day for Color. Actually, it’s been a crazy few months.

But now it’s looking possible that it could be coming to a happier ending than most embattled startups can dream of. After all that’s happened, Color might still be able to say that it has been acquired by a major technology company for millions of dollars. Or, more accurately, that some of its assets have been acquired. To-may-to, to-mah-to.

First, some context. The somewhat infamous Silicon Valley startup, which for months has been having major turmoil at the executive levels, was reported by VentureBeat to be finally winding down its operations, per an email reportedly sent by its VP of Finance. However, a spokesperson who works for its biggest investor Sequoia Capital told TechCrunch this morning in no uncertain terms that those reports were untrue, and that Color was still in business.

And now this evening, a report by the TheNextWeb co-headlined by Ken Yeung and Matthew Panzarino says that Color has been acquired by Apple:

“We’ve heard through trusted sources that the startup was nabbed [by Apple] for a price that is in the ‘high double digits’, as in millions, and that the deal is ‘done’, though papers have yet to be signed.”

We at TechCrunch have not been able to verify this concretely, as this is a very complicated situation with many moving parts — which has been the case with Color stories for a while. The company’s board of directors and executives do not always present a united front when it comes to what’s happening there. We’re holding back on reporting this deal as fact until we know for sure.

But in conversations with people familiar with Color, we understand sale talks have indeed occurred around Color’s assets for some time. Namely, Color is still quite valuable for assets such as its engineers (not so much the non-technical members of its staff of around 30 people), its patents, and its trademarks.

According to the US PTO, Color has filed applications for a number of patents on very general and very valuable things. We’re talking patents with titles such as “Sharing Content Among A Group Of Devices,” “Sharing Content Among Multiple Devices,” “Storage Of User Device Group Information,” and “User Device Group Information.”

The company also owns the trademark to its name. That’s right, it has the word “color” trademarked.

Now, many people in the tech world think that these kinds of intellectual property claims are ridiculous and are ultimately harming the ecosystem much more than they’re helping. But patents and trademarks are still worth their weight in gold when it comes to the courtroom, so that sentiment hasn’t changed the way that big companies do business. Facebook spent more than half a billion dollars buying patents during the first half of 2012 alone. Google famously spent $12.4 billion to acquire Motorola Mobility, $5.5 billion of which was for its patent portfolio alone.

From what we understand, Google has been long-rumored to have had a $200 million deal on the table for Color well before it even launched.

So, it’s not at all out of the question that Apple could very well be the one to ultimately snap up Color’s assets and engineers. Yes, Color may have a history of turmoil and very lackluster performance when it comes to attracting a user base, but it still holds those patents and a handful of talented engineers. And until the intellectual property system is truly reformed in a meaningful way, those patents more than anything else could be the key that lets a company like Color come out as a “successful exit” despite its other failures.

UPDATE: And in yet another turn in the Color saga, a story co-headlined by Liz Gannes and John Paczkowski published by AllThingsD Thursday morning says that Apple is taking a pass on acquiring Color’s IP after all, and will instead be acqui-hiring its engineering staff of around 20 for between $2 million and $5 million. AllThingsD says that the intellectual property and domain name assets, along with the $25 million or so in cash it still has in the bank, will be “wound down” — in other words, Color’s investors will redistribute the cash amongst themselves and attempt to sell the IP and domain assets to some other buyer. That is, obviously, a big difference from TheNextWeb’s report.

As for TechCrunch’s take, I still stand by all that I wrote above, especially this bit: “This is a very complicated situation with many moving parts — which has been the case with Color stories for a while.”

Color has significant assets that could be worth millions of dollars: Intellectual property along with a small and talented engineering team. Whether an acquirer bites on part or all of those assets remains to be seen, once the papers are actually signed. For now, it seems like we’re essentially watching a very complicated negotiation process play out in a public way.