Last week I attended the 2014 IP Dealmakers Forum in New York City. The topic that most caught my attention from day two was the panel discussion titled Evaluating Public Market IP Investment Opportunities. The moderator was Phil Hartstein of Finjan, and the panel included Doug Croxall, who is CEO of Marathon Patent Group, Jaime Siegel, who is Executive Vice President of Litigation and Licensing at Acacia Research Group, Corey Horowitz, who is Chairman and CEO of Network-1, Robert Satterthwaite, who is Co-Founder and Co-Porfolio Manager at Blue Sea Investments, and Kevin Klein, Director of IP Licensing for Freescale Semiconductor.
The topics discussed by the panel were wide ranging, but one of the central themes related to information, but more specifically to the benefits and challenges of being a public versus a private IP company. That specific discussion may not seem to be related to data or information per se, but again and again Harstein asked questions and drew the panel to discuss the difference between the amount of information that must be disclosed by a public company (and the onerous regulatory obligations) and the demonstrably smaller amount of information that is publicly disseminated by private companies without reporting obligations.
Harstein at one point said: “There are real challenges to being a public company… Sarbanes Oxley, even managing the company with a Board… I used to say that I had to spend 20% of the time running a public company and 80% of the time generating revenue, but today I have to spend 80% of the time running a public company.”
Croxall responded by pointing out that while there are obligations relating to running a public company, there are also advantages. ” The transparency of being a public company benefits the partners you are going to work with,” Croxall explained. “It helps because all you have to say is go look at our SEC filings and you know who we are and what we do.” While there may not be an equal trade off between time spent explaining who you are versus the time required to meet regulatory filing requirements, it does certainly make it easier for interested individuals and partners to understand what is happening being closed doors in a way that simply doesn’t happen with a private company.
“I think [Network-1] will eventually move to an exchange, “Horowitz added. “I don’t view the overhead as substantially different if you are over the counter or a exchange company.”
In discussing what is material and what needs to be disclosed by a public company, Siegel explained that Acacia’s litigation filings “are public and we do a press release on every deal.” The conversation turned to the reality that some companies do not want anyone to know they are even talking with a monetizer or accumulator of patents, let alone know that a deal has been closed. “If companies push back [and don’t want us to disclose] then they are going to have to indemnify us with the SEC and no one wants to do that,” Siegel explained.
What Siegel says is certainly accurate, and pre-dates his coming to Acacia about 18 months ago. Acacia has always disclosed every deal they have done, and a review of press releases can verify that to be true. The Acacia rule, which Siegel alluded to at one point, is that they do not want to be in the business of deciding what is material and what is not material.
“As long as this industry is a litigation based business, investors get access to whatever a Judge has access to, with the exception of what is filed under seal,” Siegel further explained. “there is a lot of information available that allow inventors to make decisions.”
There is no doubt that there is a lot of information available to investors, but sometimes in this area investors unfortunately will react to what they read on the Internet. I’m not talking about a substantive article about the state of patent law, or the type of summary of a case decision you might find on a reliable and authoritative site like Patently-O. Rather, investors will act and react based on information, which are largely rumors, on forums and in chat rooms. I don’t want to suggest the Internet is a wonderful place to get information, because it is and if you have a PACER account you can see everything filed in a patent litigation. Reading reputable sites can help digest information too, but all too frequently when I see wild swings in stock price on patent news it seems that there is an over reaction, which is what happens in an immature market and with stocks dominated by the retail investor. Of course, that volatility offers great opportunity, so Siegel’s point about anyone having access to virtually the same information a judge has is an excellent point. For those who educate themselves broadly and generally, and who also seek out primary sources of information, the industry is hardly a black box like so many seem to think.
There were also a variety of interesting points raised throughout the program, which likely seem rather random as you read below. I assure you that is my failing in not figuring out how to weave them into a narrative of this excellent panel presentation. Nevertheless, they caught my attention, so I provide them here.
When talking about the need to diversify and have multiple revenue streams, Croxall explained that it is important to have multiple assets or portfolios that individually derive independent revenue. “If you are going invest your family’s fortune, I don’t think you will put all your money in one equity… so it is the same thing with respect to an asset or a portfolio of assets.” He would go on to say that Marathon Patent Group has learned from “what worked in other asset areas and applied it to this one.”
I thought this was a particular enlightening point for several reasons. First, Croxall’s advice here can largely be summarized using the old, well known saying about not putting all your eggs in one basket. The older I get the more wise that seems. Second, while not putting too many eggs in one basket is nearly universally known, it is frequently violated by investors (and others) who forget that too much of a good thing ceases to be good when the good thing turns bad, or gets cut off. Finally, many times people miss the obvious and fail to learn lessons that are easily applied into new fields. A patent is an asset. If diversifying works with other assets to provide the appropriate normalization of risk in comparison to reward then why wouldn’t it work with patents?
Acacia is NOT in the Litigation Business
At the very beginning of the program Siegel, during his opening remarks, said: “At Acacia we are not in the litigation business, we are in the licensing business.” I know that many will shrug or laugh at the comment, but from what I know about Acacia if you care to dig underneath the surface and listen past the sound byte it is true. Siegel explained that there are real costs and real risks associated with litigation, so doing business together and licensing is always a preferable strategy. Of course, Siegel pointed out that there is still a reluctance by many entities to pay for intellectual property.
Siegel is exactly correct. There are many companies, large companies who themselves are owners of very large patent portfolios, who are reluctant to pay for intellectual property rights even though they infringe. Somewhere along the way it seems that the narrative got away from the innovator and has been turned on its head. For the most part the media, public and elected leaders, even some Judges, miss the point that those who are reluctant to pay but infringe are the bad actors — they are the tortfeasors! Sure, there are terrible litigation abuses, such as the type that the FTC recently settled with MPHJ, but a patent owner who has a good patent with strong claims is not a bad actor when they want to be paid for ongoing infringement. Sadly, even though doing business nicely and paying for rights is a far superior business model all the way around, when someone refuses to pay but chooses to infringe there is no alternative than to sue.
As should be clear to everyone in the market, the big companies love complaining about getting sued but then their attorneys laugh and joke at conferences that they “circular file” licensing inquiry letters they receive. So what choice does a patent owner have? Not much, and this is a growing problem. “We have more trials scheduled in 2015 than we have had for the entire rest of the history of the company,” Siegel explained.
Time to Money
“Time to money is directly related to the amount of money you are looking for,” Siegel stated at one point.
This pithy, but profound statement really caught my attention. I pass it along for now, but will follow up on this point later. Siegel wasn’t the only person to discuss this point during the event, this same point came up during the back and forth between Eran Zur, who is Head of IP Finance at Fortress Investment Group, and Ashley Keller, Managing Director of Gerchen Keller Capital.
Many inventors and entrepreneurs lose sight of the reality that the more you want the longer it will be to money. It is nice to have big dreams, but unrealistic expectations only get in the way of doing a smart deal. The more you want the harder it will be to get it, the more risk you will have to assume and the longer you will have to wait.
An earlier version of this article incorrectly quoted Jamie Siegel as saying Acacia would potentially have more trials in 2014 than for the entire rest of the history of the company. The quote has been modified to reflect that at least presently Acacia has a large number of trials scheduled for next year, 2015.