by Becca Cobb
All who enter the stock market game are seeking the ‘holy grail’ of investments: a substantial return for minimal risk. A developing field that could offer these high risk-adjusted returns is investing in intellectual property.
A fundamental way to use the stock markets to invest successfully in intellectual property is to identify pervasive emerging technology trends, then find companies that hold core intellectual property associated with these growing markets. Or, you could invest in companies that do this for you. It stands to reason that as technology booms, there will be no shortage of individuals and companies seeking IP rights to inventions. Thus, a company that seeks to serve this continuing and growing demand would be beneficial to look into.
Enter Marathon Patent Group (MARA).
Marathon has developed strategies that allow its clients to maximize the value of IP assets through a wide range of services. Inventors and patent owners can monetize patent portfolios through IP licensing campaigns, idea creation, development, and enforcement. In other words, Marathon takes businesses and individuals from start to finish in the IP process.
Investors can easily see why this company sets itself above competition. One of the main issues with IP investing is that typically “the best IP is not for sale.” If a company is making money through market share, high gross margins, or a great licensing deal, it wouldn’t sell the associated IP. Often the IP that is available on the market has a distressed feeling because assets that are for sale are the result of a bankruptcy or a decision of a big company to shut down a line. Investors cannot wait for IP to be on the market because by then, it generally is not associated with anything that makes money.
Marathon goes in at ground level. Assisting in development and commercialization of a license, it creates a mutually beneficial relationship with all its clients. Moreover, these partnering opportunities create an ongoing relationship that includes patent analysis and watchful tracking of patent implementation.
It cannot be stressed enough the possible benefit investors can receive from IP. A recent success story has been VirnetX (VHC), a leader in automatic secure virtual private network (VPN) technology. The company saw its stock price more than quintuple since August 2010, after it began to work harder monetizing its intellectual property.
Assisting with the commercialization is usually where most IP companies stop. Some, such as Cytori (CYTX), do not assist in expansion of the patent. While focusing on ‘high-value’ cell-based therapeutics going to market, it only assists in what they call ‘core geographies’ (only certain countries) and have virtually no system for expansion into other industries or other areas. Cytori currently trades around $2.70
Marathon goes the extra mile by providing strategies for enforcement as well as infringement tracking and reporting – and these with no barriers to countries or markets.
Making money at the outset is one thing, but keeping a vigilant eye on what others are doing is required in order to ensure you are keeping all your entitled profits. Last year, Altitude Capital invested in Visto and DeepNines, a company that just secured an $18 million jury verdict against McAfee for infringement.
Mitek (MITK) is a company with key patents in the field of remote banking and shows why enforcement is crucial. The patents held by Mitek have recently been challenged in court by USAA which argues that the Mitek patents are invalid and unenforceable. As a result of just the opened challenge, Mitek has seen its stock market value fall dramatically.
Another good example is the case of Tessera (TSRA), a leader in chipset miniaturization technology. Tessera lost close to 50 percent of market value in one session in December 2008 after the International Trade Commission (ITC) made an initial determination against the company during a patent action it brought against several wireless manufacturers. The commission initially found that while Tessera’s patents were valid, they had not been infringed by the respondents. The stock continued to trade at a significant discount until the ITC reversed its initial determination. It ruled that Qualcomm, Motorola, and four other wireless chip makers had infringed on Tessera chip packaging patents and it stopped those companies from importing chips to the U.S. unless they posted a bond equal to 3.5 percent of the products’ value. The result: Tessera stock rose over 100 percent.
There are several pitfalls that Marathon assists fledgling companies and inventors in avoiding. The risk that a key patent could be found invalid, either following a legal decision or simply as the result of rumor or attack, or patent claims that are not broad enough to prevent the emergence of non-infringing alternatives are big risks that the Marathon team protects.
Due diligence and specialized expertise are required for businesses looking to secure their IP assets. For the investor, it is imperative to find a company that is a leader in its field. Marathon fits the bill. Trading at $.38 a share, I see this stock as an excellent consideration for growth.