Published two days ago by All Things Digital, Erin-Michael Gill the current Managing Director and Chief Intellectual Property Officer for MDB Capital Group elaborated on the information technology industries’ greatest asset, patents.
His conclusion was simple, intellectual property has a direct correlation with valuation in the I.T. industry; in fact it’s what they ride on for success. The more patents a software or hardware company owns, the more valuable the company is to the industry and its shareholders alike.
To highlight the validity of this fact Gill extrapolated that the top 10 patents owned by Yahoo have been cited more than 2,200 times by subsequent inventions alone. Considering that Yahoo owns around 1,200 patents, the value of these legal documents becomes more acute.
Though one could argue that at the end of the day the products and services offered by the I.T. industry are the greatest assets produced by that sector of the economy, because let’s face it that’s what is being used by consumers and businesses alike; the true value at stake are patents because of how they affect the industry at large.
They allow the industry to self-sufficiently spur innovation which leads to a more robust suite of products and services. When handled well, customers reap these as rewards through quality products whether hardware or software. When handled poorly, it can be caustic to the industries’ job market.
The recent love triangle between AOL, Microsoft, and Facebook best highlighted just how patents grease the wheels of big business in the I.T. sector.
As Jason Viglione reported last month, Microsoft dropped $1 billion on 800 patents and 125 patent applications from AOL. They didn’t buy out AOL, but instead took the bulk of their patents off their hands for a cool billion leaving AOL with 300 patents related to their core business model.
Microsoft snagged a new wing for their patent portfolio, while AOL received a substantial injection of much needed funds and shredded some unnecessary weight from their business. Both companies are free to use their pool of patents as they will and we can expect AOL to focus more on what their customers’ needs are rather than business models that are unrelated to their core structure.
As for the triangle, Microsoft and Facebook have a healthy relationship. Yahoo! and Facebook don’t; pending litigation tends to sour business relations.
But in a three-play sway Facebook acquired 650 of those patents from Microsoft at $550 million.
In turn, Microsoft retained half of its initial investment and Facebook added a plethora of patents to its portfolio that it could benefit from in regards to Yahoo! At the same time, eliminating the potential of AOL doing the same as Yahoo! by taking Facebook to court.
However, as Bill Synder discussed, the white whale of intellectual property acquisition can quintessentially sub-six jobs from the market.
As a case study take the acquisition of FingerWorks by Apple Inc. in 2005.
Apple bought out the company. A substantial amount of finances exchanged, certain employees of FingerWorks made quite an earning out of the acquisition, but only the co-founders John Elias and Wayne Westerman were brought on to Apple’s team.
The rest of the company was now without a job.
For Apple, the acquisition made the iPhone, iPod Touch, and iPad possible due to the fact that they acquired FingerWorks for their patented TouchStream multi-touch interface and gesture-recognition capabilities. The well known pinch-to zoom functionality or page-swap horizontal-scrolling functionality (Apple developed inertia scrolling for vertical scrolling) of these devices became a reality for some of the most widely praised and purchased devices of the current technological generation.
Though there were pains along the way, mainly a loss of jobs from the market, the developmental gains revolutionized mobile devices unilaterally.
Yet in other cases, such as with the Intel acquisition of McAfee, the opposite occurs.
In an effort to bridge the gap between internet security software and next-generation processors, Intel purchased the entirety of McAfee Inc. common stock at $48 per share in cash for $7.68 billion.
The wholly-owned subsidiary now reports to Intel’s Software and Services Group, inadvertently opening the vault on McAfee’s 99 patents such as; Detection of spam images, Web scanning site map annotation, Integrated firewall, ips, and virus scanner system and method.
It’s easy to see what Intel was going for when they simply absorbed the entire McAfee team; not only their technical expertise but their wealth of knowledge as well.