Five Trillion (and Two) Reasons Patents Matter
Last Friday, shares of small-cap technology firm, Aware (Nasdaq: AWRE), soared more than 60%.
A few weeks earlier, left-for-dead dot-com company, AOL (NYSE: AOL), spiked 49% higher in a single day.
What’s the connection? Patents. Or more broadly, intellectual property (IP).
Aware sold a portfolio of patents relating to Wi-Fi, long-term evolution and Wireline Home Networking technologies to Intel (Nasdaq: INTC) for $75 million. And AOL sold more than 800 patents to Microsoft (Nasdaq: MSFT) for just over $1 billion.
Why bring the deals up? Because a year ago I told you that Wall Street was about to unlock the trillions of dollars of untapped value sitting on corporate balance sheets in the form of IP. And it’s happening!
But many pundits are trying to dismiss the latest activity as a short-lived phenomenon. For instance, a Forbes article characterized the latest dealmaking as a “speculative patent frenzy.”
Meanwhile, others are cautioning against a patent bubble.
We’re not in a patent bubble. And this is not a short-lived phenomenon. The importance and increasing value placed on IP is going to endure. Here are five trillion reasons why…
Innovation Drives the U.S. Economy
A recent study published by the United States Patent and Trademark Office (USPTO) and the Economic Statistics Administration found that:
- IP-intensive industries contributed $5.06 trillion to – or 34.8% of – U.S. gross domestic product (GDP).
- IP-related industries accounted for 40.0 million jobs in 2010 – 27.1 million directly and another 12.9 million indirectly. That works out to 27.7% of all jobs in the economy.
As the study’s authors, Rebecca M. Blank and David J. Kappos, said, “Innovation, the process through which new ideas are generated and put into commercial practice, is a key force behind U.S. economic growth and national competitiveness.”
I’d say so. Especially since the study’s authors also confess that the figures “tend to under-represent the broad impact of IP in the American economy.” So the total impact of IP on U.S. economic growth is even greater than that $5 trillion figure.
What’s the bottom line? Joff Wild of Intellectual Asset Management, sums it up perfectly, saying, “IP is of fundamental importance to American prosperity and economic growth.” Indeed.
The problem is that so few people understand this reality.
For instance, the Financial Times downplays patents as merely “ammunition in the [tech] industry’s increasingly heated round of legal battles.”
And Ron Laurie, a patents expert in Silicon Valley, also draws battle analogies, saying, “It sounds like the cold war arms race.”
But both are missing the mark.
Sure, patents help defend against legal actions. But the real value of patents isn’t insurance. It’s the economic value they create. Year-in and year-out.
As the USTPO study concluded, “Innovation has a positive pervasive effect on the entire economy, and its benefits flow both upstream and downstream to every sector of the U.S. economy.”
In other words, IP is a key driver of economic growth.
Companies get that IP matters. That’s why they continue to innovate and patent technologies.
It’s also why they continue to hunt and compete for valuable patents capable of generating additional economic benefits. As AOL’s Chief Executive, Tim Armstrong, said, “The agreement with Microsoft represents the culmination of a robust auction process for our patent portfolio.” In other words, multiple companies were interested in the potential to monetize AOL’s patents.
A few Wall Street firms get it, particularly MDB Capital. But most investors still don’t have a clue.
Bottom line: Don’t be blind to the investment opportunity IP represents. As I told you before, close to 50% of the approximately 3,900 public companies that have patents are small and/or micro caps. And since analysts pay less attention to these stocks, we can exploit information inefficiencies for outsized profits.
Like subscribers to my VIP advisory, MicroCap Tech Trader, just did. On February 24, I recommended they buy Aware based on the merit and value of the company’s patents. Now they’re sitting on a profit of 56%.
I assure you, the market’s ripe with many more opportunities to profit from IP. That is, as long as we’re willing to take the time to do some good old-fashioned due diligence to find them.
Ahead of the tape,
P.S. Each week, I alert a select group of readers to the very best opportunities to profit from patents. I’m convinced this trend represents “one of the biggest opportunities of the next decade.” If you want to be included on my exclusive list, sign up here.