IV faces up to a much more challenging market 20 Aug 14
With the announcement yesterday that it was cutting 19% of its workforce, 2014 is shaping up to be something of an annus horribilis for Intellectual Ventures. The cuts to the NPE’s global staff equate to around 130 personnel and come after an initial, smaller round of staff cuts was announced at the start of this year, and after a number of original investors dropped out of the latest round of fundraising. IV has also seen setbacks in its litigation strategy, including suffering a comprehensive defeat to Capital One earlier this year.
Here’s the official statement that IV released yesterday: “Today, Intellectual Ventures announced a global workforce reduction of 19 percent. We are making operational changes that are consistent with this reduction and will enable us to maintain and expand our leadership in the market for invention. Our assets – both people and intellectual property – are among the best in the industry.”
IV’s sheer size has started to make it look like a major outlier in a market that faces a growing number of challenges, such as the potential for further patent reform and a series of Supreme Court and lower court decisions making the terrain much harder for patent owners. That's one of the reasons why for Wall Street it's a much less appealing investment opportunity than it was a few years ago. While IV doesn’t have the same kind of quarter-to-quarter performance pressures that a public company has, investors still need to be confident that its longer-term strategy, with returns potentially taking years to materialise, can work in a very challenging environment.
For corporate investors the fact is that the market for defensive patent plays is increasingly competitive with the likes of RPX, AST and Unified Patents all now offering their services, just as the environment for defendants is probably more benign than it has been for a while. Comparatively lower prices also make individual acquisitions a more attractive option.
The shift to a more litigation-heavy strategy which has evolved over the last four years as low hanging licensing fruit has been plucked also means that IV is now more reliant on outside counsel to help it achieve its licensing aims. Of course, some of that contentious work can be handled in-house, but for the highest value, most specialised cases, premium IP law firms are clearly the best option. That is bound to have created some internal staffing pressures.
Hindsight, of course, is always 20/20 but it’s hard not to think that IV may have got its original strategy the wrong way round. If it had been prepared to litigate in its early days, then perhaps it would be far more advanced in many of its licensing programmes.
Whichever way you look at it, these cuts are not good news for IV, but they should also be put in some perspective. With its R&D operations and a commitment to generating its own know-how, IV has always been a little different to most of the NPE community. It remains one of the largest players with a global network of offices in a market that it had a big hand in helping to create. Plus, as recent research also shows, IV continues to be a major presence in the deals market. Recently it has also begun to work with operating companies to help them maximise the value of their IP - a move that could reap the firm considerable financial and reputational benefits.
However, these new cuts emphasise that IV’s evolution remains a delicate balancing act. As one of the founders, Edward Jung, admitted to the IAM blog earlier this year, size is an important part of its offering. “If you’re trying to invest in something that is long-term and risky, you need scale,” he said.
For now, at least, IV is still a patent leader. Just don’t be surprised if most of its execs would rather see the back of 2014.
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