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IP, IP Asset, Patent, Uncategorized

Patent Pricing ‘A La Carte’ Drives AOL Valuation

Over at the IAM Blog, as well as Gametime IP, MDB Captial received some undeserved credit for correctly calling AOL’s patent portfolio value at $1 B, while another firm–kept busy by actually driving the deal–went unnoticed.  Unfortunately, limelight-seekers–with no dog in the hunt–commonly take to the airwaves, while the real analysts actually driving the deal stay busy shoveling proverbial coal into the analytical fires.

MDB’s billion dollar “prediction” really just picked up on Starboard’s earlier statements regarding their own expectations, acknowledging that Starboard could very well have been correct.  However, did anyone ever stop and ask “Where did Starboard’s number come from?”  As someone who’s already made a career as a ‘back-room’ analyst (before joining the glamorous world of blogging), I cannot help but identify with the lack of recognition, so I thought it appropriate to set the record straight.  A press release issued by IP Navigation Group on the day of the announcement reads:

IPNav had previously identified and evaluated the portfolio of 800 patents being purchased by Microsoft at the request of a significant AOL shareholder. As part of its review IPNav analyzed the AOL portfolio of 800 patents using its internally developed IPNav Analyzer automated patent analysis software in conjunction with IPNav’s proprietary patent evaluation techniques. As a result of its analysis IPNav valued the AOL patent portfolio at approximately $1B.
See IPNav Valuation Adopted in AOL Patent Sale to Microsoft

Although unnamed, Starboard is suspect number 1 for the identity of the “significant AOL shareholder,” which would also explain why firms like MDB were publicly talking about the portfolio value prior to the sale, while IPNav stayed silent.  Once the deal was announced, IPNav broke its silence as Vice President Peter Hardigan took on M-CAM’s David Martin head to head during an interview on Bloomberg.  The full interview is embedded below, and makes for a great comparison between how analytics are used to actually make decisions, which IPNav must do, and analytics used to simply sell people analytics, which M-CAM does.

For example, Hardigan provides a direct answer when asked what kinds patents Microsoft acquired as a result of the purchase, explaining that IPNav identified “20 different portfolios outside of the instant messaging that everybody is talking about” including early ’90’s technology in secure transactions, auto-completion of forms, cookies and other essential internet technology.

Meanwhile, Martin demonstrated a trait consistent with his company’s work product–inability to answer questions about transactional value by pointing to relevant facts.  Asked why Microsoft would acquire these technologies now, when everyone’s been using them for years, Martin said “The goal was to offload the portfolio from AOL at a time when it was free to be transacted.”  In other words, because it was for sale? How enlightening! Martin then rambled on about a completely irrelevant lien to Bank of America for a $250 M line of credit, and professing ignorance and confusion about the number of patents:

The numbers don’t add up. There aren’t 1100, which you would expect to have somewhere in the mathematics between 800 and 300. you would expect to find 1100 somewhere in the world.  But AOL and its 13 subsidiaries, 72 different naming aliases, only has about 902 patents and patent applications. So how they get to 1100 is a bit of a mystery, and it’s certainly not from patents that are issued in traditional domiciles around the world.

So, Martin provides a Willie Sutton-esque answer to the actual question, and then blathers out some meaningless facts and figures gathered from his computerized analysis.  Notice how Martin specifically mentions thirteen subsidiaries and seventy-two aliases, which are (1) factors that failed to lead Martin to identify all of the correct assets, and (2) are somewhat meaningless anyway after hearing how real human analytics are used to accurately value patents.  When asked which patents within AOL’s portfolio were most valuable, Hardigan did the interviewer one better and gave him (and Martin) a tutorial on how to value patents, describing an a la carte pricing methodology used by IPNav.

The largest cluster of value was in the former Netscape portfolio which has about 10 sub-portfolios relevant to pretty much anyone who transacts commerce online.  We have an a la carte process … this portfolio is worth this much, this portfolio is worth this much. In aggregate, it adds up to a lot of money.  And, I think that the real difference here is that we were looking at portfolios that are early priority. They’re not things that are going to be of ultimate use to commercial entities, they’re going to be of use in a licensing context. And this is the thing that’s missing from this entire discussion. … Nobody talks about how you would actually deploy this asset and make the most money for shareholders.

There’s a saying that goes something like: “How do you eat an elephant?”  The answer? “One bite at a time.”  It’s a way of reinforcing that, for even very large projects, some things just take patience and time.  Hardigan describes the only possible way to really know the value of the AOL portfolio, and that is to look at each patent and sub-portfolio within the group, identify its value and then add it all up.

On the other hand, you could try David Martin’s approach to getting rid of that elephant, using some “magic potion” he cooked up … but it’ll probably only make 29% of that elephant disappear …



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