The following is a guest post by a fellow investor mobile guru whose interest lie within the mobile space, biotech, and precious metals.
When researching patents there are two main paths to follow for valuation:
1) Sell to the highest bidder who either wants to develop a licensing strategy to unlock their true value or wants to use them to protect themselves against other companies who have their own intellectual property.
2) Develop a licensing strategy which provides high margin cash flow for years to come.
The latter typically requires the prosecution of patents against the most obvious infringers, who once defeated will typically serve as a precedent causing others to fall in line, often not necessitating legal action to forge lucrative licensing agreements.
Intellectual Property stocks have been in the news over the last few weeks ever since Google lost out to the Apple consortium for the Nortel patents. Last week rumors of both Google (GOOG) and Apple (AAPL) being interested in InterDigital (IDCC) and their vast array of mobile patents which helped increase InterDigital’s market cap to over $1B. At one point during the week, the company’s stock price had almost doubled.
One of the original Intellectual Property plays Qualcomm (QCOM) reported this week and what is noteworthy in this filing is the surge in profits due to licensing revenues by 48% and the 87% margins on this revenue. What should be noted of this $95B market cap company is that total revenues were roughly $2.3B and licensing revenues were $1.3B. With its 87% margins, profits were $1.09B on just licensing while total company profits were about $1.1B. Qualcomm is by far one of the most successful licensing companies in the world and with 48% growth in licensing revenues it would seem likely they will continue to excel in monetizing their Intellectual Property.
Motorola Mobility Holdings (MMI) also jumped 20% this week when large shareholder Carl Icahn suggested their Intellectual Property may be the company’s most valuable asset. Icahn, who thinks the Motorola Intellectual property may be worth over $4B by itself, said in a regulatory filing that Motorola’s patent portfolio is substantially larger than the 6,000 patents Nortel sold to a group including Apple, Microsoft and Research in Motion Ltd.
Another company with licensing aspirations is VirnetX (VHC). Like Qualcomm they are licensing in the 3G/4G space. On the heals of their victory over Microsoft, they are trying to follow the same formula that has been so successful for Qualcomm and that is to help develop industry standards around their own technology so that companies will have little choice but to license from them.
A final company that has been in the news recently is Augme Technologies (AUGT). Recently they announced an agreement to acquire fellow mobile company JAGTAG. Besides the fact that Augme is quickly approaching its Markman hearing with fellow litigant Yahoo in early August, it also now sees its patent portfolio further enhanced by JAGTAG’s recently issued patent on a system that provides ad serving to a mobile device via MMS. Patent #7,958,081, entitled “Apparatus, Methods and Systems for Information Querying and Serving on Mobile Devices Based on Ambient Conditions,” was issued June 7, 2011. When targeting is possible, the system allows an ad to be served intelligently based on existing information, and the ad can correspond to existing knowledge of the user, probable location, or wording in the MMS message. This patent seems to fit in with Augme’s impressive and growing family of patents in the Mobile space.
With literally hundreds of billions of dollars at stake and due to the scarcity of foundational patents, you can bet this area is going to remain front and center for some time to come. All one must do is simply look at recent actions taken by companies ranging from Microsoft to Google to Oracle amongst others. Where the big players previously abstained from pursuing enforcement of patents against each other, in recent months an all out war has erupted with patents being the weapon of choice. Those who possess these sought after first to market patents, with little in the way of prior art, will be the ones to focus on.
These companies mentioned above, will continue to not only garner the attention of suitors who might like to own them and their IP, but investors will continue to take notice as they recognize IP has become a key, if not the key, differentiator between those leading the technology evolution and those who are still struggling to stake a claim in it.