Intangible Assets and Company Value

Over the years Chicago-based Ocean Tomo have calculated the value of intangible assets held by S&P 500 companies. Their latest report has been published today and it shows that on 1 January 2015 the percentage of the value of a company’s intangible assets grew to a massive 84% of the company’s value. That’s a rise of 4% since 2005, but more interestingly up from 17% in 1975.Ocean Tomo’s CEO Jim Malackowski is sceptical that there is going to be any more rise. He suggests that the America Invents Act combined with economic change suggests that there may be a re-balancing back towards tangible assets in the coming decade. He’s probably right - outsourcing to China is reducing and some American companies are reopening or building new production facities. That will add to the value of the tangible assets. However, it’s not clear that those will actually appear on the books of manufacturing companies, since many facilities are built and leased by other companies.

On the other hand, there is probably a limit to „virtualization“ of assets. All companies have some tangible assets - for manufacturing companies this will often be items of stock. In other companies it may be some of the IT assets. Jim is probably right. We may have reached the feasible limit. Nonetheless the figures show the dramatic impact that intangibles have had on the US economy (and probably in most of the world). 

Anecdotal evidence suggests that many boards have failed to appreciate this point and will still spend a great deal of time discussing their physical assets and too little their intangible assets, such as personnel, innovation and intellectual property. 

The public patent auction: will it be more successful this time?

One of the more curious initiatives during the patent frenzy of several years ago was the attempt to create a public market auction for patents. In recent years, however, it seemed that the lights had significantly dimmed, if not entirely gone out of that commercial experiment. I was most intrigued, therefore, by the brief note in the most recent issue of IAM (Intellectual Asset Management Magazine, issue 69, January-February 2015). This piece reported that James E. Malackowski, the president and CEO of Ocean Tomo, the creator of the live multi-lot IP auction marketplace in 2006, from which it then exited in 2009, had announced that the company was planning to re-enter this market. Thus, Mr. Malackowski stated:

"[w]e are very excited to announce the launch of our next generation auction platform from San Francisco, the site of our inaugural intellectual property auction. “After several months of working with the corporate buyer and seller community to define the parameters of the auction, we are now accepting submissions from patent owners wanting to sell high quality technology patents in an effective, transparent forum for commerce.”

In fact, the announcement had been made on October 6, 2014, in connection with the annual meeting of the Licensing Executives Society, but I seem to have missed it. Thanks to IAM, I took the opportunity to read the entire news release in connection with the announcement, as it appears on the Ocean Tomo website. The following points made in the release are of particular notice.

1. Ocean Tomo is re-entering this market “in response to input from the patent acquisition and divestiture community that it would again benefit from a more transparent process for the purchase and sale of patents.” The focus will be on providing a “simple, transparent system that provides clear timelines for sale, equal access and price discovery.” That said, particular, potential buyers reiterated the theme that this time around, they will demand “less is more”, focus on the quality rather than the sheer quantity of patents to be offered. As stated by head of acquisitions at a Fortune 250 technology company—

“We welcome Ocean Tomo to provide us with offerings that are supported by strong ‘evidence-of-use’ because my team doesn’t have the time to evaluate and prioritize everything that comes across my desk.”

2. As for the auction process itself, perceived advantages mentioned by potential buyers include the following:

a. “[T]he real-time market intelligence a live auction provides when bidding while being able to see the price at which other patents sell. This helps me value future acquisition opportunities.”  

b. Helping “close a sale faster than a private transaction because the market knows there is a fixed date on which they will be able to acquire a portfolio, which will reduce the time to monetization while helping me meet my revenue targets.” 

 Ocean Tomo stated it predicts that live auctions will take place four times during the year, roughly on a quarterly basis. As for some of the technical aspects of these auction events, the announcement stated:

“No more than 25 lots are planned for each auction, significantly less than the 100-plus lots offered early in the firm’s auction history. The firm will utilize an open outcry auction format for most lots, but has plans for the use of different auction bidding models for unique lots that will be shared with the IP community at a future date. Ocean Tomo plans to broadcast all events expanding to an expected global audience remotely bidding while reducing the travel commitments for both buyers and sellers. Diligence will again be through access to an on-line data room as well as facilitated interviews with sellers.”

All of this is well and good. Still, I find myself asking wondering whether Ocean Tomo will be any more successful in establishing the patent auction concept than they were the first time around. This is so against the backdrop of a gnawing sense that the perception of patents as an asset class continues to decline. Consider the headline in the January 8, 2015 posting of IPCloseUp “A few IP stocks shined in 2014; most declined, some significantly”, this despite the ever-increasing stock market prices that characterized the equity markets in 2014. Further, the request by prospective buyers for quality rather than quantity with respect to the patents to be offered , suggests that in some instances, patents of dubious value were being put for acquisition the last time around. It will be interesting to check back next January and see how this reincarnation of the public auction for patent has fared.

ICAP Ocean Tomo Auction Sees Record Bidding

It's good to see that Patent Auctions are apparently back up running again. ICAP OceanTomo issued a press release yesterday to highlight the USD 11.43 Million received in their 11th auction.

The press release highlights two sets of lots. An exclusive licence to a group of patents owned by the University of Southern California on a multimedia architecture went for USD 7.7 Million in a pre-auction sale.

A set of patents owned by Walker Digital LLC for which Ocean Tomo is the exclusive sales agent, according to this report. The bidding for this group started at USD 50 Million according to the press release, and stopped at USD 350 Million without reaching the reserve price. No doubt post-auction bidding will be continuing by some parties to access the portfolio. Indeed ICAP OceanTomo Managing Director Dean Becker clearly states that he plans to finish work on this lot within weeks.

Patent auctions have been criticised for allowing patents to fall into the hands of "trolls" who then exploit them. They do provide a means, however, for researchers and universities to monetarise their assets and allow the generation of cash which can be ploughed back into research and development, as the deal with the University of Southern California clearly shows.

Technorati Tags:
Patent Auction, ICAP Ocean Tomo, Walker Digital

Photo Credits: Dean Becker from www.oceantomo.com and Jay Walker from Inventors Digest (www.inventorsdigest.com)

End of the New Era? Ocean Tomo under the hammer

Law.com reported earlier this week that Ocean Tomo has sold its high-profile patent auction business to entrpreneurial British information brokerage ICAP for $10 million. The purchase, described (perhaps a little unkindly but probably honestly) as a "distressed-asset sale",comes not very long after Ocean Tomo appeared to be riding high, having sold more than $40 million worth of patents at three auctions during 2008, raking in between $12 million and $14 million in revenue. Loss of key personnel and the economic downturn have however combined, with devastating effect.

Ocean Tomo keeps its lesser-known lines of business, such as its expert-witness service.

OceanTomo

I have not yet seen Ocean Tomo's comments on its recent auction held last week, but the IAM Magazine already includes a post which reports that the record number of lots on sale went for USD 12.8 Million. IAM comments that it is interesting to see that the desire to purchase patents has not (yet) dried up. OceanTomo have not yet issued a report - at least their website is not showing anything.

The purchasers of the patents probably still have funds available for spending - at least that seems to be the case for a number of funds in the VC industy. It is not suprising that money was spent at this auction. More interesting will be the developments over the next few months and year. I would not be suprised to see more patents come onto the market as companies "rightsize" their portfolio - but that the funds for purchase becoming more limited.

Next live IP auction coming up

The Ocean Tomo Fall 2008 Live IP Auction & Conference will be held on October 29-30 in Chicago. According to the company's email, the event includes a one and a half day CLE approved conference at the Trump Hotel, a gala dinner at The Art Institute and a Live IP Auction at the Chicago Cultural Center.

Ocean Tomo expects some 500 IP and business professionals to attend, including Fortune 500 IP and licensing professionals, C-level executives from small and mid-size companies, investors, individual inventors, attorneys and members of the press. The three concurrent conference programme tracks include

* Managing IP Risk
* Buying & Selling IP
* Maximizing IP Value for Business Professionals

The full programme can be viewed here. For various reasons, most of them connected to the facts that (i) I have to earn a living, (ii) I'm neither buying nor selling any IP and (iii) no-one invited me to speak, I won't actually be there. But if any readers of this weblog are going to be there and would like their brief reflections on the event to be recorded here for posterity, can they please email me here and let me know.

Patent Quality

Day 2 of the LESI Conference in Chicago and I have spent part of the morning with OceanTomo (about which I shall blog separately). The afternoon's session included a fascinating talk about patent quality.

Christopher Ainsley of the the Patent Board reviewed their work on patent quality which seems to be mostly citation based. The Wall Street Journal has started publishing their patent scoreboard (as does the IAM magagzine). The thesis is that patents with a large number of forward citations are worth more than those with fewer citations when normalised across the industry.

Christopher pointed out patents in new technologies cannot be cited as often as technologies with a long history of patenting. They have developed the concepts of momentum patents which are those younger patents attracting a higher degree of interest.

Jonathan Barney of OceanTomo noted that their research on quality factors refelcted in higher prices in the OceanTomo auctions. In addition to citations, one of the quality factors is the renewal rate of the patents. He pointed out that the wacky patents granted over the past few years are often not renewed on payment of the first renewal fee.

During the ensuing discussion, criticism was made about forward citations being used as a quality factor. Both Christopher and Jonathan clarified that they broke their data out into Examiner citations and Applicant's citations (as Information Disclosure Statement). Both OceanTomo and the Patent Board stated that they also used data from outside of the United States (such as that from the EPO and WIPO). Christopher made the point that we need also to consider India and China in the future.

One of the main points that was made is that all of the tools on offer are using quantitative metrics rather than actually reading the claims and the specification. Christopher made the point that research showed that there is a correlation between the more subjective quality of the claims and the bibliometric approach. However, the point was made that the tools on offer are best used to pre-sort the patents. Ultimately a patent attorney is the best judge of the quality of the patent - her or his assessment may well depend on the current focus of the attorney.

The Ocean Tomo/Blueprint alliance: is it built on a sound premise?

The news has broken that Ocean Tomo and Blueprint Ventures have forged an alliance "to find, fund and accelerate the adoption of Corporate IP Spinouts within the technology sector". The alliance was announced at the IBF Corporate Venturing & Strategic Investing Conference held in Palm Springs. The idea is that

"Leveraging Blueprint Ventures' investment focus on Corporate IP Spinouts, this partnership will allow Ocean Tomo to present its clients with an additional monetization strategy for dormant IP beyond the company's highly successful IP auction and private sale capabilities. Blueprint's corporate partners will benefit from deeper access to Ocean Tomo's IP valuation, auction and private sale services in cases where a Corporate IP Spinout is not feasible".

IP Finance notes this development, but -- having digested the news, --wonders if this notion is based on a simple model that sees each item of IP as the basis of a business model of its own. The one-patent (or other right) business is highly vulnerable to challenge to that right's validity, just as a one-product company is vulnerable to sudden market shifts, government regulation and other events that lie outside its control. Arguably unutilised IP is best put to use, and its value best realised, when it is absorbed into a business in which it provides complementary support for market presence or R&D products that already exist -- though it is conceded that this cannot always be the case.

Ocean Tomo Spring auction catalogue here

Deutsche Patentbewertungstage = German Patent Valuation Days

The German company ratingwissen.de is organising its second patent valuation days at the European Patent Office in Munich on 19-20 February. An action-packed programme - mostly in German - is promised with contributions from Triumph-Adler on financing a company using IP, Andrew Rayner from the Ocean Tomo auction house, Christian Klawitter (Freshfields) on legal problems, Alexander Wurzer of Patev on patent evaluation as a service, as well as many others.

Registration of the conference - which is mostly in German - can be done here.