ritz-carlton-san-franciscoI returned from the Ocean Tomo Spring 2009 Conference and Auction in San Francisco with a head full of questions about the status of the market.  The market continues to grow, and that is a fact evidenced by the number of professionals and market participants that attended the conference.  Nevermind the dismal auction results, which will be the subject of another post, the conference itself and the overall optimistic and enthusiastic mood of discussion that buzzed through the rooms and halls of the San Francisco Ritz Carlton was a contageous display of what is to come in the IP market.

Ocean Tomo truly put on a first class event, and the first rate people that both attended and participated surely evidence the leading figure that OT ocean20tomo9has become in the intellectual property world.  The staff at OT obviously worked dilligently to create an arena for productive discourse and discovery.  Through the turmoil of restructuring and the recent part with the original OT auction creator, Andy Ramer, Ocean Tomo overcame the rumors that the sky was falling at the Chicago-based firm.  I am particularly grateful to Mary Ann Nguyen, an analyst in OT’s expert testimony practice, who took it upon herself to introduce me to many of the OT leaders who made the event possible, including CEO Jim Malackowski. 

Now to the good stuff: the IP topics that dominated the panel discussions and the roundtable luncheon conversations.  I have created a list of them, with no special order of importance.  However, I will premise the foregoing by first saying that there was one overarching theme that did not escape one single panel or conversation: IP VALUATION.  Will a standard be achieved?  What is the most efficient method?  When can we expect a sufficient amount of price information?  If the most practical method of valuation is simply what a willing buyer will pay in the open market, is that value actually decreasing just because buyer confidence is down?  And round and round we went . . .

CONFERENCE TOPICS AND POINTS OF INTEREST TO THE IP MARKET

The following is a list of statements made and questions asked during panel discussions and water-cooler conversations I personally encountered that I found particularly of interest to the average IP market participant.

  • KSR, Bilski, eBay, and Medimmune have had or will have a profound effect on the IP market.  The first panel on the first day included Mark Lemley, among others, who discussed the effect of (mainly) these four cases on the patent litigation frontier.  Lemley, being the professor of the group, explained the outcome of the cases as a product of the inherent characteristics of patents as a right recognized if and only to the extent it is recognized by a legal system.   This was expected.  He did state, however, that in his opinion the eBay v. Merc Exchange case is the most important of the three for the landscape of patent litigation.  After the panel, there was a great discussion in the hall which transfered the application of these cases from their effect on the landscape of patent litigation, to their effect on the landscape of the IP market.  This was also expected, as most conference attendees were interested in the IP market, and not just patent litigation. (of course, the IP market includes, and is qualified by, patent litigation to some extent).  The conversation discussed the recent survey results of the 5th Annual Survey of the Licensing Executives Society.  The survey results showed that these cases really haven’t had much of an effect on the IP market, as evidenced by nearly half of the respondents (licensing professionals) to the survey that responded that they hadn’t considered these cases as having an impact on their business.
  • China’s new patent law is a step in the right direction.  An entire panel was devoted to a discussion about China’s new legal implementations in the patent arena.  Although China’s Minister-Counselor for Science and Technology did not add much to the discussion, the overall consensus was that the new reform is a step in the right direction.  One point that I found particularly alarming, however, was that the maximum damages award for patent cases in China is currently only 1,000,000 RMB, or roughly $146,000.
  • IP Valuation is directly correlated to the “know how” that is, or may be, tied to the transfered IP. In other words, IP is more valuable to a willing buyer when there is “knowledge” of its use already on the buyer side, or transferred with it by means of personnel.  One panel speaker went as far as to declare a measurement of this added value, saying that IP is 3 to 5 times more valuable when people associated with the patent are also transferred in an asset deal.
  • In an M&A deal, IP value should be considered up front because you will be forced to consider it on the back end for accounting reporting purposes. This makes sense.  IP used to be transfered in M&A deals without accounting for its value.  Now, FAS 141, 142, and 157 force you to allocate a value to the IP assets obtained in a deal on the back end, so you might as well do it on the front end.
  • Investment bankers hate IP.  This also makes sense, because investment bankers don’t want to touch or discuss IP because it inherently creates a price gap, and anything that creats a price gap between the parties in a transaction could potentially be a deal killer.  This is a problem, however, because ibankers control the deal in many instances.
  • The CIPO movement is gaining.  The CIPO movement is a movement to create a C-level position for the IP officer, director, or lawyer in a corporation, to make sure they are in the room when decisions are made that may involve intellectual property.  These are people who want to, or who agree to be, accountable for the success or failure of IP as an asset class or profit center for a company.
  • Build an IP data room NOW.  Small companies with IP portfolios that may be a target for acquisition in the future should begin to build an IP data room now.  This will facilitate the deal, and make them more attractive to the buyer.  Buyers will not search through unorganized due diligence files to find tidbits of IP.  If you have significant IP assets, document them in an organized fashion.  Marketing is everything.  I can’t stress that enough.  Also remember that time is usually the enemy of the seller in an IP deal, as IP assets diminish in value because they may become obsolete or run out of time.  The more organized you are, the quicker the deal will get done, and the sooner you will get your money.
  • Brokers vs. Direct or Auction platform.  If you are a seller and you care who the buyer is, you should probably use a broker.  If you don’t care, then sell direct or through a medium such as an auction or exchange.  Always remember that the buyer is buying a monopoly of sorts, and selling a competitive advantage to a direct competitor is probably not the best business decision.  If you are a buyer and using a buy-side broker, make sure they are charging an hourly fee so as not to incentivize a higher price (common sense).  The smaller shops may work, but the bigger names will probably get the best IP (Coller Capital, etc.).

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This entry was posted on Tuesday, March 31st, 2009 at 5:16 pm.
Categories: Burgeoning Business, Copyright Caucus, Investment Intelligence, Patent Prospects, Portfolio Potential, Trademark Trends ~ by Ian McClure.

5 Comments, Comment or Ping

  1. Hello -

    What did you mean by, “Build an IP data room NOW.” Are you referring to the Data Room that Ocean Tomo provides on their website?

    Best,
    Gregg

  2. admin

    Hi Gregg,

    No, I am referring to something a little different. For many start-ups, intangible assets and intellectual property will be the only real corporate value, and the only thing driving a purchase price should the start-up become an acquisition target in the future. I am suggesting that such start-ups, from the inception of the company, begin creating a private and secure data room which organizes and documents the company’s IP and any and all transactions involving that IP. This will create a “marketing package” to which potential buyers can easily gain access to evaluate the value of the start-up. Buyers want to be shown what it is they are buying and why they should buy it. When it comes to IP, the biggest deterence to closing deals is the lack of certainty and transparency with regard to the value of the IP. A data room of this sort minimizes this “price gap” and risk for the buyer.

    Such documentation will also make sure that corporate formalities are met, and directors can easily monitor IP portfolios. A large reason why venture capital-infused companies are successful is because the venture capitalists make sure everything is organized and done correctly from the beginning. A secure IP data room will force companies to document their real worth, effectively resulting in a lucrative marketing package in the future.

  3. Hi -

    I see, thank you. Yes, we maintain our IP records in a “separable” manner from everything else; they live in their own electronic and physical filing cabinets.

    Best,
    Gregg

  4. admin

    That is impressive, and it means you are leagues ahead of other companies. I have performed due diligence on companies that want to sell their IP assets, but can’t find them or document their worth.

    I checked out Actuality Medical’s site. Very interesting.

    Thanks for your input.

    Ian

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