So, let’s be clear. These are muddy waters to enter. We are not talking about such a tech bubble per se, we are focusing on IP transactions – the direct monetization of intellectual property as assets (or at least the potential for it). This is where the silent elephant enters the room – that is, the non-practicing entity (NPE). The “patent aggregator” whose balance-sheet outlook depends on its litigation prowess is not a troll, but an “enabler” of market-like forces to form and efficient IP management, or so the argument goes for such IP strategy. I am not going to debate the role of the NPE (or patent troll) here; there are aspects, both good and bad, that have resulted from their appearance. That is another topic in and of itself which I have talked about elsewhere. For this discussion, it is best to remain “NPE neutral” if you will (although I don’t mean to imply that one in general has to take a side in this regard).
NPEs have, in a short time, been able to attract investor attention to intellectual property which has traditionally been only of secondary importance to technology and revenue generation. It’s safe to say that it still is, but IP has now also emerged as a powerful leveraging tool for executing both offensive and defensive positioning strategies in standards and platform wars. To a large extent, this has been playing itself out in the rapidly-evolving area of mobile computing, software platforms, telecommunications, and their integration into everyday appliances that we are familiar with. The NPEs didn’t cause this to happen, but they certainly woke the big tech companies up to the power of large portfolios and IP management as a core business model, regardless of quality. Now, the tech giants are doing battle as would-be NPEs; that is, they are practicing in the technical art so to speak, but not necessarily in the portfolio per se that they are trying to enforce through their IP strategy (further blurring the line of distinction). So, calling them a true NPE would be a misnomer.
As with any goldrush effect, this has enabled companies that have large IP portfolios to license them at higher valuations than might seem reasonable. In some cases the buyer wants an insurance policy, in others he wants a sledgehammer. If your intellectual property can get caught in the middle of a strategic dispute, then hang ten and ride the wave because it’s no longer about royalties – it’s all about impact. From this perspective, we can now ask does that make it a bubble? Well, it certainly has some bubble-like qualities.
Let’s go through the checklist. Do these would-be investment instruments have prevailing positive trends? Check – just about all the big players are in lawsuits (mostly with each other); we are in the era of the patent wars. IP strategy is now a highly-visible aspect of competitive advantage and differentiation. Whether the assets themselves will ultimately result in a payout is questionable, but regarding the current belief that there is value in stockpiling IP armaments as part of an IP management policy, this can’t be denied. Are analysts fueling the fire? Well, calling the real NPEs analysts is more than a bit unfair, they are more like the cheerleaders. Is there a herd mentality forming? You bet – just look at the big companies that are floundering today, and the hungry eyes that are staring at their large, mostly-unused IP portfolios, albeit at lower valuations than other transactions we’ve seen in the recent past.
So, you’re telling me that we’re heading for that thing called recalibration? Wait a minute. I really had you going there, but we swept way too quickly over whether we have a true IP market or not. The truth is that the shakeout (I won’t call it a recalibration, although it is similar, but on a much smaller scale) could be the cloud’s silver lining. That is, when normalcy returns to the large corporations, who will most likely not recover value from such IP transactions, the opportunity for a true IP market could become ripe. So, the burst of the would-be bubble could yield the emergence of a market which could be an inoculation against such gaming of the system and cyclical value depreciation. The appearance of sensible valuation models and metrics in place, and the use of IP analytics for developing reliable indicators could solidify such a framework to create truly incentivized IP strategy and solid IP management. That sounds like something worth popping.
