The New Era in the IP Assets Market

by
James E. Malackowski,
President & CEO, Ocean Tomo, LLC

This year may turn out to be a watershed moment for intellectual property in the U.S. Relative to recent years, there are better prospects for patent reform legislation and a noted appetite at the Supreme Court for patent cases. At the same time, the market is witnessing the prospect of increased IP regulation in the form of new accounting rules and expanded review of patent-related business transactions. In addition, there is widespread and growing appreciation that enhanced competitiveness is inextricably linked to IP. Against this backdrop, the time is ripe for the development and widespread use of private sector mechanisms to cure inefficiencies in the IP marketplace.

The Supreme Court’s current interest in patent cases coinciding with momentum building for a patent bill indicates an activist Court seeking to influence the scope of patent legislation. The Court’s timing is impeccable. The private sector now has an opportunity to widen the application of patent pools and IP securitizations, participate in the development and use of secondary markets for IP transactions, and explore new avenues for IP asset monetization and commercialization. With Congress and the Supreme Court taking up IP issues, a level of urgency surrounds private sector activity.

The IP debate has revolved around promoting innovation and American competitiveness in the global markets. While the public dialogue extends to new technologies, new legislation, and new business models leveraging IP assets, there has been less attention devoted to the marketplace mechanisms and infrastructure necessary to make IP assets liquid and transferable at low cost. Yet the maturation of the IP marketplace is critical and necessary. First, corporate IP management stands to benefit from marketplace innovations. Second, efficient market mechanisms create benchmarks for the courts to recognize in IP infringement damage awards. Third, private sector innovations can cure market inefficiencies, thereby influencing the shape and scope of legislative remedies. Examples of recent marketplace innovations include public auctions of IP and emerging patent valuation standards.

It is a momentous time for the IP markets as 80% or more of a public company’s market value resides in its intangible assets, and this dependence continues to increase. Business models are emerging to more efficiently acquire, enforce, and monetize IP assets. Small and large corporations with IP portfolios will benefit from widespread adoption of the newly available IP marketplace mechanisms. A new era is dawning with efficiencies ready to be exploited by IP-rich companies. For example, the ability to buy and sell patents and patent portfolios in a liquid market changes the IP management options at a company’s disposal. Greater transparency in IP-based transactions and the development of a secondary market for IP assets are welcomed by investors and policymakers. Use of the new IP marketplace mechanisms supplies IP assets to a market with pent-up demand. The time is ripe for the private sector.

Last week on April 19th, Ocean Tomo held its Spring Live IP Auction, where total floor sales reached $11,429,000, including sales of $3,025,000 and $2,860,000 setting the world’s record for highest selling prices for patents at a multi-lot live IP auction. The auction had a 51% transaction success rate; 55% of the sellers who participated in the auction successfully transacted their patents; and the average selling price per lot was $336,148.

About Ocean Tomo: The next Ocean Tomo Live IP Auction is set for June 1, 2007 at The Dorchester in London, England. The Catalogue, now accessible online at ww.OceanTomoAuctions.com, provides information regarding the 600+ IP assets to be offered. Sellers include top multinational companies such as PCTEL, Inc., Air Products and Chemicals, ABB Research Ltd., MeadWestvaco Corporation as well as small to mid-sized companies, professional inventors and investors.

Field-of-Use Licensing

by Sandra L. Shotwell, Ph.D.

Managing Partner, Alta Biomedical Group, LLC

Field-of-use licensing provides the licensor with greater control over the use of its intellectual property, while maximizing the use and value of the technology. In order to maximize the use of a given technology, managers will have some additional work to do as they identify, negotiate with, and manage more than one licensee. Special issues related to multiple licensees in distinct or overlapping fields will have to be handled with forethought and a balancing of interests.

When is field-of-use licensing worth the extra effort? When more than one company is needed to fully develop a technology’s potential, when different licensees are needed to address different markets, or when field-of-use licensing has the potential to significantly increase the financial return from a technology. In all of these situations, field-of-use licensing can produce better results for everyone involved.

Shotwell, S.L. 2007. Field-of-Use Licensing. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at iphandbook.org.

We Are All Financial Institutions Today

by Nir Kossovsky, MD
CEO and President, TOPCAP


For years, financial institutions led their peers in corporate risk management. Always facing credit, market, and operational risk, any one of which could produce a catastrophic outcome that could precipitate the demise of the corporate enterprise (e.g., EF Hutton, Anderson, Enron, Drexel, Barings), financial institutions have always been under the gun to improve their control, mitigation, and management practices.

With intangible assets comprising upwards of 80 percent of the market capitalization of traded companies, the value of intellectual properties and other intangibles in the 21st century economy is indisputable. Companies and investors are rapidly coming to understand how the convergence of human capital and intellectual assets are their greatest source of both strategic risk and financial reward.

If we focus on the risk side, it appears that we are all financial institutions today. We are all exposed to precipitous losses in enterprise value of the basis of impaired intangibles. Consider Jet Blue’s recent reputational hit due to poor IT investments; BP’s decline due to poor safety practices, or Vonage’s collapse in the face of patent litigation – all body blows to enterprise value arising from a catastrophic loss of (intangible) asset value.

Because TOPCAP is an intangible asset management consultancy, and we help clients at the C and board level identify and take practical steps to mitigate risk, we are seeing this awareness evolving. One of the key aspects of the new risk agenda we are seeing is the increased emphasis on functional alignment – where the risk team, the finance team, and the capital management teams work together. We're also seeing the incorporation of lines of business and IT that need to be linked into the finance, risk, and capital teams.

But when is all said and done, a company is still exposed to fortuitous risk because
%$#!& happens. And in practical terms, this is why equity holders get higher returns because they currently hold that corporate risk. This past fall, the Intangible Asset Finance Society (http://www.iafinance.org/) surveyed the intellectual property community with the question: In IP-rich companies, who bears (or should bear) the ultimate risk in IP litigation, IP M&A or technology transfer - shareholders, outside counsel’s E&O insurance, the company’s law department, the company’s D&O insurance or professional IP risk bearers?

At the operational level, executives and legal advisers acknowledged that certain events could put a company at mortal risk. The emerging question: is whether shareholders will wish to continue bearing catastrophic risk or will demand that companies find a more efficient vehicle for risk transfer?

Nokia Pays Up

by Doug Pollack

As reported earlier this month, Nokia made a "$20MM quarterly payment to Qualcomm based on its own valuation of patents covering Nokia handsets that use the WCDMA" (WSJ 4-06-07). The general counsel at Qualcomm stated that "they have no right to do that....what they have done is they have simply made up a number."

This tactic represents an effort by Nokia to reduce its current royalty rate paid to Qualcomm, which is estimated to be around 4.5% of the cost of the cellphone. They are arguing that they should be paying a lower royalty rate to Qualcomm for WCDMA technology than on early generations of technology.

Nokia contends that the $20 million figure that they paid as estimated quarterly royalties as a "good faith" estimate of the value of Qualcomm patents it expects to be using after their current agreement expires. It would be instructive to see the methodology that was used by Nokia to determine the value of these patents.

ValleyWag on Technology Patents

by Doug Pollack

Valleywag, the self-described tech gossip rag for Silicon Valley, weighs in on patent law. An interesting view relating to tactics used by the "old guard" in the technology and communications industries for using patents to protect their position in emerging, highly competitive markets.

Their recent article follows:


America's crazy patent law

"Verizon's legal persecution Vonage -- which resulted in the internet telephony company being told by a judge today to stop stigning up new customers -- is yet another demonstration of the perverse effect of US patent law. Patents are supposed to protect inventors, and encourage innovation. Instead they've been co-opted by lumbering corporate giants such as Verizon to stifle competitors; or by failing entrepreneurs who hope to salvage some of their losses by suing a nimbler competitor; or by trolls who collect patents simply to shake down successful companies. Vonage is not a popular cause; it's no longer at the forefront of innovation; and the business press is relishing the drama of the New Jersey company's decline. Vonage may fail, but, if it does so, it should not be for patent infringement. Verizon's inventions would have stayed in a drawer had not the telecom incumbents had to deal with cut-price internet telephony. The law, once seen as a cornerstone of American capitalism, now stands in the way of technological progress. "