The age of the IP-aware activist shareholder has arrived 23 Jan 15
Private equity firm Vector Capital has filed suit against Technicolor over allegations that the French company manipulated shareholder voting. This is the latest development in a long running dispute between the two over the future of Technicolor's operations and technology licensing business.
Vector Capital won a competitive bid for a minority stake in Technicolor in June 2012, investing €127 million (US$166 million) in return for around 21% of the company’s shares and two seats on the company’s board. It is currently Technicolor's largest shareholder.
Technicolor already has a history when it comes to monetising IP and from the very beginning Vector made clear that it saw the company’s patents as its most promising likely source of ongoing value. “The most valuable part of the business is the intellectual property portfolio,” Alexander Slusky, the investment fund’s managing partner (and a director at Technicolor), said at the time. He also suggested that the company should explore options for partially or wholly divesting its product business so that more capital could be allocated to IP development, acquisitions and monetisation.
Among other measures that were instituted with this goal in mind was the hiring of Boris Teksler – previously head of patent licensing at Apple and a founding force behind Hewlett-Packard’s IP licensing business – to head up the French company’s technology division.
However, the battle between the two parties that has since ensued would suggest that not everyone at Technicolor is happy about the approach Vector advocates. The company sued Vector in November last year in an effort at terminating the governance agreement which gave the investment firm representation on the board and various committees. Slusky claimed that he was thrown off some committees, had been locked out of the HQ building several times and had been denied meetings with company management. Technicolor CEO Frederic Rose claimed that Vector wanted the company to sell off its operating business and become a ‘patent troll’ and did not support strategy proposals that emphasised the development of new intellectual property that could be licensed in the future.
The situation has echoes of another case of IP-driven shareholder activism. After investor Starboard Value pressured the board at Tessera Technologies to redouble its efforts at getting a return on its IP portfolio back in 2013, the US company’s chairman Richard Hall penned a piece for Forbes entitled ‘Don’t Turn My Company Into A Patent Troll’, in which he claimed that: “Starboard’s plan is not simply to cut costs. It proposes to eviscerate Tessera’s R&D and rely instead on hyper-aggressive patent troll-style litigation to build revenues.”
However, the protests of Hall and others do not appear to have stopped the changes that Starboard set in motion. In the end, 2014 turned out to be a bumper year for Tessera; not only did it close a number of major deals, but its stock hit a 52-week high at the end of December, capping off an impressive 81% appreciation in share price over the course of the year.
There is unquestionably a case to be made, then, for intervention by IP-conscious activist shareholders who push for a more aggressive approach to IP monetisation. And it is something we are seeing happen more and more often, as the investment community increasingly recognises that there is plenty of money to be made from strong IP assets. Starboard had previously had a hand in instigating AOL’s $1 billion sale of 800 patents to Microsoft and MIPS Technologies $350 million sale of its portfolio to an Allied Security Trust vehicle; while in July, Vector Capital acquired patent monetisation advisory firm IPVALUE. Also last year, IAM reported on investor Barry Honig’s recommendations to senior management at Internet Patents Corporation; and earlier this month, hedge fund investor Kyle Bass announced his intentions to challenge patents held by major pharmaceutical companies using the USPTO’s Patent Trial and Appeal Board.
Companies that know they have any of these investors among their shareholders would be wise to think about whether they are really getting good value out of their IP assets at the moment. There is a good chance that this new breed of IP-aware activist investor will be writing to them sometime soon.
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