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BCGI Reports Loss
Arranges Bond for Appeal
By Gene Retske

Boston Communications Group, Inc., BCGI, reported a net loss for the second quarter ended June 30, 2005 of $17.9 million, or $1.01 per share. The loss was due mainly to a $24 million non-cash charge stemming from the initial jury verdict in the Freedom Wireless lawsuit, which BCGI continues to contest. The company also announced that it has placed $41 million into escrow, to be used as a bond should it ultimately lose the appeal and have to pay the $128 million judgment. Cingular Wireless LLC agreed to post bond for any amount owed beyond that for which it may be held jointly liable.

President and CEO E.Y. Snowden continued to emphasize the importance of BCGI’s growth strategy, despite the uncertainties brought about by the Freedom lawsuit, and said that its acquisition of PureSight, Inc., an Israeli firm, would offer BCGI “a distinct competitive advantage in the rapidly emerging content filtering space.” He said that the prepaid subscriber base grew by 34 thousand in the second quarter, and that revenue diversification efforts would continue. The company’s financials showed that revenues from customers other than Verizon and Cingular grew 90% during the quarter, compared to the same period a year ago. Verizon and Cingular were primary targets of the Freedom patent infringement action.

BCGI is contesting a jury verdict earlier this year that it violated patents owned by Freedom Wireless, an Arizona company. BCGI subsequently filed a related action, claiming that the earlier verdict is invalid because Freedom Wireless knowingly withheld prior patent art. Final arguments in this case were heard on July 26. The judge is expected to rule after August 15. BCGI has said that it will file motions for judgment as a matter of law and a motion for a new trial, or a reduction in the damages awarded by the jury. The court could rule that the patents are invalid, as BCGI claims, a decision that Freedom could appeal, or it could uphold the verdict against BCGI and the co-defendants, which would be appealed by BCGI.

The court also has the latitude to increase or decrease the award, and to issue injunctions barring BCGI from using the technology.

The company has said that if it finally loses the patent infringement case, it may have to consider bankruptcy protection. Freedom’s attorney told The Prepaid Press that Freedom has no desire to drive BCGI out of business, and only wants to be fairly compensated for the use of its technology. Previous attempts at negotiating a settlement or license agreement have so far been unsuccessful.


PureSight Acquisition

BCGI completed its acquisition of PureSight, Inc. and its Israeli subsidiary, PureSight Ltd. in June for $6.7 million. PureSight is a provider of advanced content recognition solutions. BCGI hopes to use PureSight’s filtering technology to enhance its Access Management product line. PureSight’s technology is the basis of BCGI’s Mobile Guardian Filter, a system permits wireless operators to restrict access to inappropriate content.