Monday, 9 December 2013
Rockstar and IP Governance
Over at the IP Summit in Paris, John Veschi - CEO of Rockstar - has provided a couple of fascinating insights in how IP is governed and should be included on balance sheets. One of John's thesis is that if Nortel had put the value of IP onto its balance sheet, then the company might not have been placed into bankruptcy. Rockstar - on the other hand - was able to value the IP at USD 4.5 billion because of the arm's length transaction in the form of the purchase by the Applie / Microsoft consortium. Clearly there is / was a mismatch between these two values. Currently it's considered to be too hard to place any value for IP normally onto a balance sheet. Historic costs - including preparation and prosecution costs - is clearly inaccurate because the value of IP changes over time. The difficulty on ascertaining value means that litigation concerns often result in a value of zero being placed on the balance sheet. To date there have been no shareholder suits arguing that the IP should be valued higher. Share analysts fail to understand the value of IP, as this author can confirm having been consulted many times on this subject. John drew an analogy with share options. Their value was originally not included on balance sheets. Today the Black-Scholes method enables at least a rough calculation to be made. The value of IP will also be an inaccurate calculation, because of unknown variable. John concluded that an IP rich company needs a different governance strategy in order to exploit its value. Few CEOs have any IP background and it's not surprising that they tend to be dismissive of IP, particularly when faced with an allegation of infringement. The discussion afterwards also illustrated different opinions. One speaker highlighted the risk of invalidation of IP risks. John pointed out that this risk can be built into calculations.