After a lengthy partnership, Time Warner (TWX) and AOL are currently preparing to go their separate ways. While both companies hope for a smooth transition, a 2007 lawsuit filed by a small company Modavox (MDVX.OB) may significantly impact AOL and Time Warner valuations. Two years ago, Modavox sued AOL for patent infringement of their Behavioral Targeted Marketing intellectual property. Modavox is now asking for sanctions, and a recently released 8K third-party valuation may point to the seriousness of the issue, and its consequences for AOL. The issue will affect parent company Time Warner, as Modavox filed a suit against them as well.

The ease of a case focusing on patent infringement, such as Modavox’s, can be clouded by its a highly technical subject matter; however, Modavox’s request for sanctions is relatively simple: the motion suggests AOL/Tacoda and its attorneys repeatedly and intentionally failed to comply with general court orders pertaining to discovery procedures, findings of spoliation and spurious production, destruction of code, and perjury. The filings paint AOL/Tacoda’s defense as stalling, refusing, and failing to provide the court-required documentation.

Two examples illustrate the nature of the requested sanctions. Modavox claims that Tacoda destroyed portions of a source code that existed in 2007, which Tacoda still refuses to provide, when the motion was filed. Modavox also wants the court to issue an order that precludes Tacoda from asserting that it has not infringed Plaintiff’s patents in reliance upon source code or metadata. A complete list of the requested sanctions can be found in the filing.

The court has set an agreed upon timetable that allows AOL/Tacoda two weeks from the late October filing to respond. After the response, Modavox has one week to respond. As the clock ticks on the Time Warner/AOL spin off, both companies will certainly anticipate the true post spin valuations calculated by investment bankers.

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