Wednesday, 30 July 2014

IP Evolution: a chance to talk

This morning, in The Andaz Studio (a rather smart and revamped meeting room in what used at one time to be a station hotel next to London's Liverpool Street Station), a group of IP enthusiasts, administrators, owners, practitioners and monetisers came together at the invitation of AISTEMOS (on which, see earlier post here) to discuss the evolution of strategy for dealing with IP as an asset class while eating a sumptuous buffet breakfast.

With AISTEMOS CEO Nigel Swycher in the chair, Sir Robin Jacob (head of IBIL, UCL) opened the discussion by asking whether IP monetisation and its treatment as an asset class is actually such a new topic, adding some critical comments concerning the "toxic mixture" of factors that make not just patent litigation (a major driver of IP monetisation) but all litigation such big business in the United States. These comments triggered a variety of responses. Larry Cohen (Latham & Watkins) thought it easier now to raise money on the strength of ideas, though it's still true that those who need the money don't know where to go for it while those who have the money have too little idea as to how to evaluate the worth of an idea-based loan. This lack of knowledge of IP on the part of lenders, if excusable since the banking community has more to deal with than merely IP, was emphasised.

Tony Clayton (Chief Economist, UK Intellectual Property Office, which published its Banking on IP report last November) then spoke of the problem he had identified, which is not one of starting up new innovation-based businesses but one of scaling them up. In the Far East we've seen state-sponsored capital being made available, but the preference of the UK was for private sector finance. Topics raised here included the presentation of information at the point at which a loan was sought, the difference between one-patent-per-product industries and those which are more complex. The use of Big Data to unravel these complexities was advocated -- bearing in mind that machines can deal with data, but they can't understand it. Should people who make decision on the basis of data analytics be fired? That's an overstatement, but those self-same analytics can take away jobs by doing the unintelligent tasks and leaving only the intelligent tasks to IP decision-makers.

Following a short break for the purpose of replenishing empty plates and then not-so-empty stomachs, the discussion resumed, opened  again by Sir Robin.

Could we ever imagine a free market for IP, just like art, precious commodities or pork bellies? Businesses like Ocean Tomo were founded on the assumption that there could be, but the occasional auction sale or publicised transaction hasn't yet been scaled up?

Tony Clayton pointed out that this is already being done for the copyright industries with the Digital Copyright Exchange: so far, things have gone slowly [this blogger wonders whether there should be some reference to the Copyright Hub here], but the trick is to persuade people who own the copyright that there is a market for their copyright properties. By taking a non-transparent, short-term position, they are hampering the growth of the market.  Roger Burt added that there are two very different types of market for IP: one is for IP that people want to use, like essential technologies governed by FRAND terms, and one is for IP that people don't apparently want to use.

Risk: a game for some, but a matter
of life or death for an IP-owning business
The discussion then turned to the strategic use of patents in litigation, and the vulnerability of single-patent and one-patent-per-product businesses to legal threats to the validity of their registered right. The role of insurance was raised here, with some actual figures being bandied around in place of the usual generalisations about how cheap or expensive IP insurance is.  The insurance industry hasn't been reacting too well to IP, largely because of the lack of reliable data: when any IP insurance premium is calculated, much effort goes into enumerating and evaluating the many risk factors; added to this is the cost of running a due diligence exercise on an insurable prospect. With better data, insurance companies can offer better value in their policies.

Is there any catalyst that might spark a sudden IP revolution in terms of valuation and funding decisions? No, said Tony Clayton, the process will be evolutionary, as demonstrated examples of successful IP-backed loans and ventures will encourage more lenders to commit their funds.  Robert Sumroy (Slaughter and May) added that one of the problems is that we love complexity: our law is not unlike the Babylonian Talmud in its complexity, and it's enjoyable to discuss and analyse that complexity -- but that's something that has to be overcome when selling the notion of IP to those who need to know about it but do not practise it.

Tony Clayton next observed that banks are more interested in getting money back after they have lent it than in gaining a security which they can dispose of if the loan is not repaid. The quality of the patent and an understanding of it are not much use in this regard. Roger Burt supported this: the borrower's business plan is key and (as Larry Cohen observed) it's not merely the quality of the business plan but the quality of its execution that counts.

Sir Robin closed the breakfast by saying he'd never participated in a meeting quite like this. Neither had we, and a good time was had by all.


Anonymous said...

Banks are going to have to learn the complexities of patents if they want to use them as assets. And I think they will because too much value is locked up in IP to ignore it in the larger financial system. I think more and more people now realise that big data analytics are not the answer. Look at the role of complex derivatives in causing the financial crises. There is no substitute for really understanding the system/product that you are dealing with. Present day finance/investments based on headlines and herd behaviour will have to be replaced by more nuanced thinking. That is difficult and painful. The discussions at your breakfast were part of that pain, but also part of what is needed.

Nigel Swycher said...

Please read our article on Big Data solutions to delivering IP Risk and Value

Mark Harris said...

My impression is that it is not the banks that want to use patents as assets, but the patent owners. Rather than them learning, we have to educate.

Big data analytics do not serve to provide all the answers to all the questions, but rather they are a tool to free up time to do the nuanced thinking. Of course analytics tools are never a substitute for real understanding, but why do long division when there is a calculator on your desk? Why write to companies for their latest share price when all that data has been aggregated online?

Analysis of vast sets of patent data can help inform decisions and maybe help investors understand patents better - as Warren Buffet says: “Never invest in a business you can’t understand.”

Anonymous said...

Nigel, I read the article you refer to. I agree there is a lot of data that could be used to analyse value of a patent case. But looking at the paragraph under the title 'The Value Axis' it refers to standards-essential patents, patents which have been disputed and patent quality/strength. Most patents won't fall into the first 2 categories and patent strength is difficult to measure. However surely patent value is more dependent on the breadth of scope of the claims, presence of third party dominant patents, market value for the product, whether there is a buyer for the patent. There seem to be a lot of important factors that won't be addressed by your big data analysis. That means the analysis would give a false confidence to those looking at the results, particularly those who don't know about what's missing from the analysis.

Nigel Swycher said...

What we say in the article is that an obvious driver of value is patents that have been successfully licensed or litigated, and that it is reasonable to look at comparables. Our concern is that in a world where the data is not made accessible, markets don’t stand a chance of engaging with the asset class. You have two options - look at the available data or stumble around in the dark. Talking of which who are you, and would you like demonstration of CIPHER?

Anonymous said...

According to Relecura's calculation of patent strength 'The effect of Patent Office actions and reviews is however not considered currently', so CIPHER won't take into account the most detailed publically available assessment of a patent case. Presumably because it's too complicated to do so. And that is essentially my point, the complexity of valuing a patent has to be appreciated by all the people who'll be using CIPHER data. If those people are going to be financial people they are going to be investing money from pension funds and naïve individuals into organisations whose value has been predicted using CIPHER. That is a serious matter.

Nigel Swycher said...

That’s the beauty of CIPHER. It is being put through its paces by over 50 major organisations, including IP attorneys, IP solicitors, IP consultants, IP data providers - and then there is you. Sitting in the dark, imagining it might not shine light on an asset class that is struggling to evolve. If you are serious, you should at least explain why you refuse to identify yourself or accept our offer to see CIPHER in action!