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Investors prefer other forms of IP value creation over enforcement, says report

IP Wales has published an interim report today that highlights several companies traded on the London Stock Exchange’s Alternative Investment Market (AIM) which could present rich opportunities for investing in patents. The report’s authors also present evidence suggesting that patent owners can elicit a positive response from investors by emphasising the collaborative, rather than the confrontational, aspects of their IP strategies.

The study – titled ‘Patent Prospecting on the Alternative Investment Market’ – sets out to “explore how the skills of intellectual assets management can be used to add further value to a business through an enhanced investment potential”.

IP Wales – an IP analytics support initiative of Swansea University – investigated the patent holdings of over 1,000 AIM-listed companies between 1993 and 2013 (AIM launched in June 1995). Researchers found that “well over 10%” of those companies were “patent-active” during that period, holding “in excess of 12,000 patent records between them”. More in-depth study of those patents – involving analysis of forward citations, territorial coverage, legal title and legal status of the patent family, technology clearance searches and claims clearance searches – and consideration of the market cap of the companies that hold them enabled the research team to identify and grade 394 patent investment prospects across 79 AIM-listed businesses.

Of those 79 companies, five are picked out as high-grade ‘four-star’ opportunities for patent investors: Blinkx (BLNX), Alliance Pharma (APH), Seeing Machines (SEE), Sphere Medical Holdings (SPHR) and Surgical Innovations Group (SUN). The report’s authors state that the identified patents owned by those five companies “have had a significant impact on other companies trying to patent inventions in the same technology area, thereby calling into question the ability of a rival to hold the protective shield of a legal freedom to operate in that technology space”.

In addition, IP Wales’ analysis of the patent holdings of AIM-listed companies reveals some interesting possible trends when it comes to what aspects of IP assets might prove attractive to investors.

Researchers found that over 10% of the patents they identified as having investment potential had been used as collateral for raising finance. Although the majority of the companies holding those patents are not US-based, all of the collateralisation arrangements relate to US patent assets with most being security agreements made with US state governments. The study suggests that the fact that a patent has been successfully used to raise capital in this manner could improve its potential for returns in the eyes of investors.

The report also finds that companies which release press statements detailing collaborative uses of their IP assets are likely to provoke a more positive response from the investment markets overall than when they announce their engagement in litigation involving their IP, whether as plaintiff or defendant. The authors write: “We found strong evidence to suggest that AIM investors are responsive to intellectual assets management press releases. We have seen that the sword of patent enforcement is two-edged and patent active companies listed on AIM should anticipate a negative market response to any threat of or from patent litigation. A much stronger positive market response can be anticipated from the announcement of a more collaborative use of patents (ie, the licensing-out of patents and knowhow or a new strategic corporate agreement).”

The 5.67% drop in share price of Revolymer (REVO) when it announced it had launched a patent infringement action in February last year is cited as one example of investors’ negative reaction to litigation. On the other hand, fellow AIM-listed companies Futura Medical (FUM), Environmental Recycling Technologies (ENRT) and ZOO Digital (ZOO) all experienced increases in share price during 2013 due to their announcement of new licensing deals.

But despite the apparent positive impact on share value created by IP collaboration, the IP Wales report’s authors claim that the majority of AIM-listed patent owners are missing out: “Whilst it is reassuring that the majority of [intellectual asset management-related] press releases are of this nature it is far less reassuring to note that nearly three-quarters of patent active companies listed on AIM do not engage in press releases promoting their intellectual assets management skills to potential investors.”

Investing in IP-based stock remains the calling of a very select group of investors who possess specialist knowledge and are willing and able to take the high risks that it involves. As such, the findings of any study that attempts to provide something like an objective evaluation of the investment potential of specific patent assets must be viewed with caution. Nevertheless, the report does underline one of the key obstacles facing both IP investors and IP owners: the paucity of relevant information that can assist investors to make properly informed decisions. Companies could provide investors with a much needed helping hand – and secure more funds for themselves in the process – by focusing on communicating the full extent of their IP value creation activities, and not just their involvement in litigation.


Jack Ellis
IAM Magazine
22 April 2014

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IP management, Licensing, IP litigation, Patents, IP finance, IP valuation

Comments

RE: Investors prefer other forms of IP value creation over enforcement, says report

Enforcement is not IP value creation.

The IP per se is actually irrelevant. The "investors" react negatively to enforcement because there is wind of commercial competition. The notice of a patent action is often the first time these investors have got wind of that fact, and being rather simple folk there is the knee jerk. When they calm down and someone explains the reality things realign.

Licensing increases value for the same reason....sales is all that matters.

Companies really do not focus on a litigation "strategy". They are sometimes forced to take this action but the vast majority never get to court.

You actually missed the OMG jaw dropper.

1000 companies, 12000 patents and only 12 were regarded as 4 or 5*.

I have checked and not even a flicker on AIM from that bombshell.

Ignorance is bliss.

Nicholas White, Tangible IP on 23 Apr 2014 @ 18:51

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