Monday, December 8, 2008

New Position

Sorry for the delay in my posting as I have been working in my new position as VP, Business Development for RPX Corporation as of Labor Day 2008. Check out www.rpxcorp.com for more information and please feel free to forward patent acquisition opportunities my way.

Thursday, July 31, 2008

The Best IP is not for Sale

Most of the action in IP investing relates to investments in IP assets. There is a view that patents, brands, copyrights, and other intangible assets have inherent value and investment strategies have been created to capitalize on these assets. Patents are now routinely acquired by investment groups as part of an enforcement and licensing strategy. Copyrighted film and music libraries are the core assets underlying notes with attractive yields. Because of the vast (and rapidly growing) number of IP assets that are out there, asset-based investment opportunities will always be available.

However, one of the things I like to tell people about IP is that typically "the best IP is not for sale." If a company is making money through market share, high gross margins, or a great licensing deal, why would the company sell the associated IP? Often the IP that is available on the market has a distressed feeling because assets that are for sale are the result of a bankruptcy or a decision of a big company to shut down a line. A ton of the IP on the market is worthless because it isn't associated with anything that makes money.

How does an investor get to the attractive IP that exists within a business and definitely is not for sale? Well, there are some ways of which I am aware, and I think this is going to be a major source of investment innovation in the future. Last year, Altitude Capital invested in Visto and DeepNines and that caught the attention of Forbes (DeepNines just secured an $18 million jury verdict against McAfee). Opalesque recently wrote about Aurarian Capital, a hedge fund that employs a long/short equity investment strategy "focused on small cap firms which can be distinguished by ownership of intellectual property protected innovations that are about to migrate in evolution from late development stage to early stage commercial adoption." Through analysis of how IP impacts a business and purchases of stock on the open market, Aurarian's returns have been impressive.

Investors don't necessarily have to acquire an asset to make money. When great IP is embedded in a business, equity, debt, and other investment structures can be employed.

Sunday, June 29, 2008

IP Business Congress

I want to give you my report from the first ever IP Business Congress, which took place last week in Amsterdam. LINK

First, I have to say that from my perspective the quality of IP professionals at this conference was second to none. There were representatives from large and small businesses both in the US and internationally. I had substantive conversations about not only intellectual property theory, but also the intellectual property business.

My big impression is that while the patent system is under attack in the United States, governments in Asia and Europe are rethinking their current IP regimes and are actually trying to find ways to make sure that the US patent system is not the de facto system for the world (and for anybody that tracks the dollar on a currency basis I'm sure this sounds familiar.....).

Second, the main emphasis of the conference was on the importance of business organizations to establish the equivalent of a Chief Intellectual Property Officer (or "CIPO"). I was struck by the quality of CIPOs at the conference from companies such as Microsoft, IBM, TomTom, HP and many others. More importantly, there were many IP professionals from global organizations present who were not on panels but have major responsibilities. Having really spent my career on the IP issues of sub $100 million businesses, I was intrigued by ideas of creating outsourced CIPOs for small and midsized businesses that cannot necessarily match the budgets of the big guys.

Third, from an investor standpoint I could count on one hand the number of fellow investor types that I met at the conference. The quality of the people I met were very high but few in number. Is this a sign that IP is still an undiscovered area? Or that investors have evaluated and passed?

Finally, I must say that the IP industry appears vibrant. There were none in the audience lamenting the state of the IP industry, especially with respect to broader economic issues. I had a great time meeting various industry participants and will follow up with additional ideas soon.

Sunday, June 1, 2008

Patent Analytics

One of the great things about patents is that each and every patent possesses all kinds of data. There is data about the invention in the patent; there is data about the patent itself; and then there is data about patent data (metadata). For data hungry investors, the wealth of data within patent databases is intriguing. Several firms have created patent rating methodologies that incorporate regressions, data mapping, and other statistical techniques to help determine which patents do or do not have value, and which companies have the best patents.

In my book I discuss methods that firms use to do the statistical analysis, and of course this is an evolving area that is changing. Many investors are highly skeptical that patent data can provide useful information, yet many analytics firms are hired to perform detailed statistical analyses before an investment. Other investors believe that you can't really trust a statistical model because it really is all about the strength of a claim in litigation, and yet the Ocean Tomo 300 ETF (AMEX:OTP) has outperformed the S&P 500, DJIA, and the Nasdaq since its inception. Supporting all of this, Thomson Reuters, Bloomberg, and Google have all started patent data initiatives that are inevitably going to give investors the ability to combine patent analysis and financial analysis from a single source.

I'll be moderating a panel this month on Patent Analytics at the IP Business Congress in Amsterdam and I'm sure I'll learn more when I'm there about what is the next evolution of the space.

Monday, May 19, 2008

Brand Investing

There is a cool new article in the New York Times today on River West Brands LLC (I was one of the original two founders but left in 2005). RWB focuses on the acquisition and licensing of brands that are "dormant," meaning that the brands are not actually being used in the market.

The article is called "Can a Dead Brand Live Again?" and it details some of the opportunities and challenges associated with pursuing this strategy. I would definitely recommend that anybody interested in brand investing read the article.

Because of my experience with RWB and other brand deals, much of my work on the investment side involves understanding the value of dormant brand assets and the strategies for making money from them. There can be great upside in the brand acquisition and licensing model (take a look at Iconix Brands for instance ... ticker symbol ICON) but also risk (check out the recent events surrounding NexCen Brands ... ticker symbol NEXC).

While patents are clearly where most investors are focused when it comes to IP, brand investing is definitely an evolving space worth watching.

Wednesday, April 30, 2008

The Evolving Market

Yesterday Dow Jones released a story titled: "IP-Focused Hedge Funds Launch Amid Market Volatility". The essence of the story is that IP assets are perceived to be uncorrelated with other asset classes (such as stocks, bonds, commodities, real estate) and that these uncorrelated assets are attractive to institutional investors:

See Article


"NEW YORK -(Dow Jones)- Nobody wants to be correlated to the stock and debt markets right now, especially hedge fund investors. That sentiment has created an opportunity for non-traditional hedge fund and private equity vehicles that invest in intellectual property and patents.

With markets volatile, and with some hedge funds losing money or not beating their benchmarks, funds are facing tougher questions from their investors. Now demand is growing for hedge funds that invest in areas like patent infringement lawsuits and intellectual property rights. Advisors to hedge fund investors - as well as funds of funds themselves - are preaching more diversification, and these types of hedge funds offer that opportunity. Supply is starting to follow the demand."

This article does support much of what I have seen in the market today and there are in fact sophisticated investors looking at the space because they seemingly can't find appropriate risk/reward investments in other parts of the market. IP has such great potential because it is present everywhere you look, and one of the great things about IP assets is that individual asset types can lend themselves to different investment strategies.

For instance investors may look at return strategies for a patent portfolio:

1. Acquisition with an intent to license
2. Acquisition with an intent to litigate
3. Equity investment because of role of patents in business (as barrier to entry, defensive value)
4. Debt investment with patent and associated royalties as collateral (often thought of as royalty securitization)
5. Event arbitrage based on news event (Rambus (OTC-RMBS) shares jumped 39% on the announcement of a March 26 jury verdict in its favor)


Add in the fact that the world of IP is much larger than just patents and it becomes clear that the number of potential strategies is quite broad (and therefore there is hope among many investors that "alpha" is lurking). There are opportunities to make investments that have huge reward potential, but can have binary risk characteristics. There are other opportunities where IP assets are more proven, and while the returns are seemingly less exciting they are appropriate compensation for the underlying risk taken. Of the 10-12 fund initiatives of which I am aware, no one fund or firm has yet to set the gold standard in this space. Most firms are still on their first or second funds, and as performance starts to be realized and understood it will be interesting to see the impact on new allocations by institutions.

Thursday, April 10, 2008

A New Era of Intellectual Property Investing

Today's investors are looking for new ways to generate returns outside of the stock market, and Intellectual Property has emerged as a new and compelling type of asset around which many investors believe they can generate substantial and uncorrelated investment returns.

Investment strategies are being developed around patents, trademarks/brands, copyrights, and other forms of IP. New investment funds have been developed to focus exclusively on IP, and many believe IP is the next new "asset class."  Of course with any new investment strategy there are inefficiencies and unknowns. Mix in arcane legal and accounting regimes, and investors can discover great opportunities. However, investors untrained in IP may be unaware of important risks.

I wrote Strategies for Investing in Intellectual Property (BeardBooks, 2008) to help investors, attorneys, and intellectual property owners understand many of the issues and trends in intellectual property investing as well as to promote this new field generally. Through Terrier IP Investments LLC I work with a number of IP asset owners and investors, both new and traditional. 

To the extent there are new and interesting developments in the field of IP investing, I hope this blog can be a resource.  I can also be reached at druder@terrierip.com if you would like to discuss individual opportunities or ideas.

- David Ruder