Let’s begin with the definition of “asset” per Investopedia.com, namely “[a] resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. “ Investopedia.com further explains that—
“[a]ssets are bought to increase the value of a firm or benefit the firm's operations. You can think of an asset as something that can generate cash flow, regardless of whether it's a company's manufacturing equipment or an individual's rental apartment.”By contrast, “asset class” is defined as ‘[a] group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. The three main asset classes are equities (stocks), fixed-income (bonds) and cash equivalents (money market instruments).” Here too, Investopedia.com further explains the term, noting that--
“…in addition to the three main asset classes, some investment professionals would add real estate and commodities, and possibly other types of investments, to the asset class mix. Whatever the asset class line-up, each one is expected to reflect different risk and return investment characteristics, and will perform differently in any given market environment.”Based on these definitions, it would seem that patents can certainly be viewed as an “asset”, albeit of a peculiar and even sui generis kind, where the connection between a patent as an asset and the value that the patent brings to the firm is difficult to explain, much less to quantify. What follows from the definition of “asset class”, however, is that not every “asset” constitutes an “asset class”. That distinction would seem to apply regarding patents. My familiarity with the notion of asset classes derives primarily from the investment literature, where the categories are used in connection with formulating a formal (or informal) investment risk strategy. Notions such as “lighten up on stocks”, “reduce the duration of your bond holdings” and “the commodity super-cycle is over”, are representative examples of the role that an asset class can play in making investment decisions. To speak of a “market for patents” in this context is simply inapt.
As an interesting aside, CalPERS, the California Public Employees’ Retirement System, America’s largest pension fund, announced last week that it will eliminate all of its hedge fund investments, which amount to more than $4 billion in 24 hedge funds and six hedge fund-of-funds, here. I heard a podcast interview of a senior official from CalPERS, who made the comment that hedge funds are not really an asset class but a way of doing business, which CalPERS believes is too complicated and too expensive. A fortiori, if that is CalPERS' view of hedge funds as an asset class, what can possibly be said regarding patents? If the foregoing is correct, then the question remains—why the insistence on nomenclature (“patents as an asset class”)?
Truth be told, it seems that the reason is simple—it sounds good. To speak of one’s assets as members of an asset class is to admit oneself into the world of professional investment, be it a fund, investment bank or other source of substantial investment capital. The high profile disposition of patent portfolios such as Nortel, Motorola Mobility and Nokia, anomalous as they were (all having been driven by financial difficulties with the seller), only stoked the aspirations of “patents as an asset” to be recognized as “patents as an asset class”. There is a legitimate, indeed, an essential role for an ecosystem in which patents can be valued and sold. But this ecosystem is still a work very much in progress. I wish it every success-- the IP profession only stands to benefit from the value that such a robust patent transaction ecosystem can bring. But let’s not claim to be something that it is not, and cannot be.