In October, I attended the Ocean Tomo Patent Auction in NYC. I was surprised to see that I was one of three venture capitalists in attendance reviewing the inventory of patents changing hands. What? No Web 2.0 discussions or golf? Why bother?
The Ocean Tomo Fall 2006 Live Intellectual Property Auction netted nearly $24 million, more than double the patent sales compared with Ocean Tomo’s April auction. Sellers included inventors, law firms and companies such as Agere, 3Com, AT&T, BellSouth and IBM. Over 400 people attended the auction. Among the more unusual sales, the domain name 1800yellowpages.com sold for $1.3 million, and a catalog of Jimi Hendrix studio recordings fetched $15 million.
The market’s reaction to recent patent disputes underscores the importance of IP for technology companies. Research In Motion (Blackberry) forked out over $600 million to settle a patent dispute with NTP. More recently, IBM filed patent infringement lawsuits against Amazon targeting various issues including advertising, hyperlink technology, electronic catalogs, customer recommendations and Web site navigation.
It was just in March that the world was going to come to an end (at least to those of us with ADD), when the RIM patent suit made it look like brinksmanship was not left just to the Cold War days. RIM settled with the litigant NTP and the joys of real-time calendaring and the continued rudeness of clicking away at emails during meetings would continue. Of course if you are using a SideKick or a Q phone, your ADD continued unabated.
Why is this patent auction of interest to our startup portfolio companies? The answer can be found when they frequently ask, “Why bother prosecuting a patent when we know they won’t be issued in 2-4 years in any event (assuming they will be at all)?”
While I am a Jimi Hendrix fan, I was not at the Ocean Tomo Auction to bid on his song library. I was at the patent auction on behalf of our portfolio companies. Our team reviewed 14 patents with our portfolio companies and we were hoping to increase shareholder value by acquiring already issued patents to help bolster their IP positions.
The average life of a portfolio company is 5.6 years and that hardly leaves enough time to get through the patent prosecution process and have a patent issued. So to extend the IP of our companies, we often look at what IP is available when we are acquiring assets or businesses to combine with our fledgling portfolio companies. We have acquired 22 companies during the life of this current portfolio to extend the product set, customer set, revenue base and hopefully solidify the position of the IP for our companies.
This is all valuable, and not as a basis for being a litigant as in the RIM case. Instead, it is to assure that the acquirers can continue to enter new markets. In our routine discussions with all of the acquisitive technology acquirers — such as Cisco, IBM, EMC, HP, Yahoo!, Google, Microsoft, Symantec or Business Objects — these companies all stress the importance of the value of substantiated IP when making acquisition decisions.
They want to reinforce the notion that messing with the big boys, when they are holding a strong deck of IP cards, will surely lead to Mutual Assured Destruction!