Shift Age Valuation
Regular readers know that I have often written about Intellectual Property in this space. IP is increasingly important in the valuation of all enterprises. I provided a historical context to this trend here, and later talked about Ocean Tomo, one of the companies that is helping to create the IP marketplace.
As mentioned in one of the earlier columns, the percentage of the aggregate value of the S&P 500 companies that is IP has gone from 17% in 1975 to 80% in 2005. The transactional process of IP, until very recently, has largely been the same as it was 20 years ago. This inevitably means that a more fluent, liquid and transparent marketplace for IP must develop. One of the initial developments over the past two years has been the IP auction. While there are a number of these auctions, I have been privy to the Ocean Tomo auctions and using the results from these auctions alone the trend lines are very clear.
Two weeks ago, Ocean Tomo had itsâ€™ spring auction in San Francisco. Once again record prices for IP portfolios were reached. One of the lots up for auction sold for $6,600,000, setting a new world record for a patent lot at a multi-lot live auction. The lot was for processing digital data in bit streams In addition there were three other lots that resulted in seven figures sales. What is interesting about these numbers is they are solidly going upward. Each auction sets a new world record. The fall 2006 auction set the record with a top bid of $1.4 million. That was broken in spring 2007 with both $2.6 million and $2.75 million bids. The record for top price at an IP auction increased more that 400% in the short span of 18 months.
There are several reasons for this. First, the advent of the auction creates an ever increasingly valid marketplace for IP, attracting ever more quality patents. Second, the auction process attracts buyers who, in the prior secrecy shrouded IP marketplace, did not have knowledge of patents available for sale. Third, the transparency of the auction process provides validation of market valuation of patents. Finally, and this is the point that I believe defines the Shift Age and the future of the global marketplace, the value of IP relative to other assets is dramatically increasing. IP is, and will be perceived as the key value of corporations. This will of course provide added incentive to inventors with a hopeful result in innovation, something certainly needed across the board in this new global age.
Land, and the crops it provided, was the wealth in the Agricultural Age. Production, and the goods produced was the wealth of the Industrial Age. Technology and the dramatic changes in communication, storage and productivity created the wealth of the Information Age. Intellectual Property and the innovation it will create will be the wealth of the Shift Age. There will be new forms of financial exchanges that will alter the valuations of companies and patents. However, it is interesting to note that the old commercial model of the open auction, which has served the marketplace so well through the last three ages is now breaking open this new world of valuation.