Richard Lloyd

In late March we ran a story on the overall size of the PIPCO market. Blogger, investor and stock analyst David Hoff, who closely follows the listed IP companies, had put together a list of the 29 stocks that comprise the market in the US and calculated their combined market caps to be $9.4 billion.

Hoff ran the numbers again yesterday and found that the market had fallen in size to just over $9.3 billion. That fall came despite the fact that the list of stocks that Hoff follows now stands at 30 after he added California Gold Company, a business which was the subject of a reverse merger with MVP Portfolio in February. Without California Gold’s $70 million valuation, the market would have been around $9.26 billion

Despite the fall in value, Hoff still sees reasons for optimism in how the market has grown and developed. “It’s still pretty impressive that a $9.3 billion industry has been pretty quietly created which is hated by the mainstream investment community, politicians and anyone who’s not actively involved in patents,” he says.

The market has dropped in line with many small-caps stocks, which have fallen as the larger Dow Industrials index has soared to new highs. Among the most notable fallers, Vringo has seen a 20% fall in value since March 21 (when Hoff originally valued the whole market), which wiped around $70m from its market cap. That came, in part, as the Court of Appeals for the Federal Circuit heard an appeal in early May to a Virginia court’s finding in favour of the NPE in a major patent infringement case against Google. Although a decision has yet to be issued, a high-stakes piece of litigation like that has an out-sized impact on the market. “The Vringo oral hearing shows how added uncertainty impacts an IP investment, regardless if it is factually based or not,” Hoff commented. “When sentiment and perception shifts there can be extreme fluctuations in market value."

He then added: “These companies are backed by technologies written on paper, filed at the USPTO and essentially no one’s paying for them without litigation and lengthy litigation at that. They’re traded and valued on perception and sentiment.”

Among the big gainers were Marathon Patent Group which earlier this month announced a series of deals with IPNav and has seen its stock price increase 18.5% since late March.    

Despite the struggles of the market, Hoff insisted that he doesn’t expect a period of consolidation among PIPCOs: “How would a board of directors try to quantify the value of these companies?” Instead a far more likely scenario in his eyes, is that more PIPCOs will be formed as operating companies look for buyers for their IP assets or partners to help monetise them. In other words this group of 30 is ripe for expansion.