I have followed the developing story of John Desmarais and his reported purchase of 4,000 patents from Micron as covered by Joff Wild and the IAM Blog, among other bloggers. A very nice recap of the story, the questions that have been raised, and the meaning of it all can be found HERE under an IAM Blog post titled “Why Micron Matters“. The better title, however, might have been “Why IP Matters”, for this story truly brings to light (if all reported facts are accurate) two of the largest questions facing CEO’s today: (1) How important is a high-quality IP portfolio to a business?; and (2) How important is the efficient and accurate treatment (recognition, management, accounting and reporting) of that intellectual property?
The gist of the story is that a prominent IP litigator purchased a large and alleged high-quality patent portfolio from a company known for its patent portfolio, but not for its support of NPE behavior. The sale, of course, seems to hypocritically support such publicly decried behavior - and therein lies the fuel to the fire of questions the sale has created.
To premise the following, as an entrepreneur at heart and proponent of the IP market in general (and risky-yet-innovative transactions involving IP), the move by Desmarais seems incredibly business-savvy. Absent any foul play (and I’m not supposing there is any), from a purely business perspective the purchase seems to show incredible foresight.
The story’s spotlight seems to have shifted from Desmarais to Micron because of Micron’s public position against NPE practices. This angle is not one which I have concerned myself with as much as the non-reporting of the sale to its investors. Reportedly, there has been no such disclosure. Whether this raises corporate law questions is not for me to decide nor discuss in this forum. A proper business judgment is just that - a business judgment.
But the nondisclosure does elicit questions regarding accounting and disclosure procedures, in general, with respect to intellectual property. Do corporate disclosure laws such as Sarbanes-Oxley reach far enough to include intangible assets in the context of proper accounting methods currently used? An intellectual discussion of the disparities in treatment of IP in accounting was highlighted today over at the IP Finance blog. In this respect, does “accounting” take on two meanings - one including the balance sheet figures, and one involving the corporate good citizen policy of simply “accounting” for all assets and deals appropriately for the benefit of the market . . . or if even for the benefit of its shareholders?
Questions asked by Ralph Eckardt at 3LP Advisors and posted on the IAM Blog are right on the money; and some are more easily answered than others. The most interesting of these, and one of the directly attributable questions to the Micron story, is what responsibility does senior management have for managing and ensuring a proper return on [IP]assets? If the answer is “none”, then a sale of high-quality IP assets without disclosing that sale to shareholders involves no wrong-doing. But if the answer is “a considerable amount”, which I like to think it is, then this story is something to talk about. We must premise all discussions of the Micron story, however, with two kinds of “responsibility”. There is the legal kind - a duty, if you will. And then there is simply a business kind - an occupational responsibility to help a company perform well. The latter is a sure bet. Senior management in charge of optimal corporate performance should have a responsibility to manage and ensure a proper return on IP assets - especially those high in quality. The former kind of responsibility - the legal kind - is one which I have touched on in my discussions of the intersection between corporate governance and IP management in recent posts, and in a recent article published in The Federal Lawyer. Although examples of enforcement are scarce, there may well be corporate disclosure requirements by law with respect to intangible assets. Whether any of these might be at play in this circumstance is unknown. For the purpose of this post, it is simply prudent to reflect on this possibility, and on the importance of accurate “accounting” of and for intellectual property assets. And this is why the Micron story is the perfect storm to bring this discussion to the table.
(pictured here is a train station in DC. Another amazing picture taken by Leslie Rodriguez Photography - my sister, of course)