It used to be that patents were trophies for clever people who came up with inventions. But in the knowledge economy, that’s no longer the case.
Patents are big business. Last year, Apple, Ericsson, Microsoft, Research in Motion, and Sony got together to spend $4.5 billion to buy more than 6,000 patents from the bankruptcy estate of Nortel Networks. The companies tucked 4,000 of them into a venture called Rockstar that will license them out to other tech companies.
Increasingly, companies are finding that patent portfolios are among their most valuable corporate possessions. Kodak’s bankruptcy is partly about the value of its treasure-trove of patents. IBM is in the process of monetizing its intellectual property, mostly through licensing. And companies are increasingly turning to complicated strategies involving spinoffs, lawsuits, and non-producing entities, or NPEs, to turn their patents into cash.
Corporate America used to deride the patent trolls, treating them as if they were barnacles on the ship of commerce, living off the scraps from someone else’s mental effort. Now, many companies are devoting increasing energy to aggressive management of their own intellectual property and to acquiring and licensing that of others.
It certainly makes investing in tech companies more interesting. It’s not just about revenue growth and the capital spending cycle, or the latest consumer toy any more. Now there often may be hidden assets on corporate balance sheets—especially companies that have been around a while—that can be worth billions. And ferreting these assets out can be highly rewarding.
Investing is about identifying value. The evolution of our economy from a service-based to a knowledge-based structure makes that knowledge all the more important.
Douglas R. Tengdin, CFA
Chief Investment Officer
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