Think Business Cannot Predict the Future? Patent Landscape Analytics May Prove You Wrong

Regular readers of the IP Asset Maximizer Blog will recognize my previous post which provided an illustration of the predictive nature of patent landscaping to improve business decisions using Cox Enterprise's $300 Million acquisition of Adify as an example. I wanted to follow up on that post because a recent announcement by Yahoo may demonstrate that, at least in some situations, patent landscaping analytics are so good at predicting future competititve activity that they can operate as a business crystal ball.

In that post, I predicted that Cox would likely experience substantial competition in the vertical advertising space as it seeks to capitalize on its purchase of Adify, and supported this assertion by providing a picture of third party commercial intentions by looking at patent filing data. This prediction was bolstered by recent a Google announcement that it was partnering with NBC-Universal to deliver targeted ads through cable. This was not surprising looking at the patent filing data that signaled significant investment by Google in the vertical advertising market. Moreover, I argued that Google's activity should be a concern for Cox because a significant strategic purpose of Cox's purchase of Adify is certainly to generate significant revenue in targeted advertisements to be delivered over Cox's cable networks.

There was more competitive activity to be predicted from the patent filing data, however. Specifically, Google is not Cox's only problem: this week Yahoo announced that it was introducing, in Jerry Yang's words, "revolutionary" targeted advertising planning and buying program called "Apt". Apt is said to provide the greatly needed service of giving advertisers a more efficient route to more targeted audiences would help hard-hit local publishers. Cox Enterprises is a publisher of several of the "hard hit newspapers" that Yahoo is seeking to service with Apt. Moreover, Apt was announced just one day after Yahoo announced that it was entering into a partnership with Time Warner, which signals that Yahoo is also interested in targeted advertising through cable.

So, to recap: Google is seeking deliver targeted advertising through cable and Yahoo is seeking to deliver targeted advertising to newspapers, as well as cable. Cox executives should be very concerned about this turn of events just as they are no doubt seeking to demonstrate the value provided by the Adify purchase to its cable and newspaper businesses. While I do not wish to count Cox out, it appears that Cox will face huge obstacles in executing on its strategic business plans that formed the basis of its purchase of Adify. I truly hope they are successful in developing a premier vertical advertising using Adify as a business platform. However, given the emerging presence of Google and Yahoo in Cox's primary markets of cable and newspapers, Cox may find it difficult to execute on its business strategy associated with the Adify acquisition.

Importantly, Google and Yahoo's desire to enter the targeted advertising market was fully predictable by a review of the patent landscape data as shown in the below table. Google's 15 total filings spread out over the course of several years signaled that Google was undeniably serious about competing in this market in a big way, and that it may own dominant rights to basic technology as a result of its acquisition of DoubleClick's early patent rights. Google's announcement of its partnership with NBC Universal merely confirmed the validity of the signal shown by its patent filings. Similarly, Yahoo's 6 filings within last few years that it has recently identified vertical advertising as an area where it wished to own patent rights, a fact that should have signaled, and now is demonstrated by, Yahoo's announcement of Apt.

The Adify-Cox acquisition should serve as an object lesson for those playing in the M & A space. Before executing on an acquisition strategy where the business goal is to fill a strategic need not currently present in their company (i.e., vertical advertising for Cox), the relevant patent landscape cannot be ignored. In this Adify-Cox situation, one could argue that the patent landscape effectively operates as a crystal ball that demonstrates the amount of competition that Cox will face from other companies in its foray into vertical advertising. While I do not contend that it will always be possible to predict future competition from the patent landscape, I believe that businesses ignore the power of patent data in validating strategic business questions at their own peril.

Investors Can Predict the Winners of the Alternative Energy Race: Follow the Patents

It seems that in just the last few months, reduction of US dependence on foreign oil has moved from an occasionally discussed aspirational goal to becoming a critical public policy mandate. Indeed, there is much talk about the energy policies of both John McCain and Barack Obama, each of which focus substantially on increasing the amount of energy obtained from within the borders of the US. As an interested observer, it appears to me that the publicity associated with The Pickens Plan announced in July 2008 (which I previously wrote about here) served as a significant impetus for increased public awareness of alternative energy as a public policy concern.

There can be no doubt that the alternative energy "train has left the station" and that we will begin seeing an ever-increasing amount of corporate investment in both wind and natural gas technology. This investment will be directed toward the participants' technology becoming critical aspects of the burgeoning alternative energy infrastructure. Of course, technology development typically results in patenting activity. To this end, in my previous post about The Pickens Plan I suggested that Mr. Pickens may have launched a "gold rush" of patenting, which will likely be followed by rampant patent litigation.

The viability of my prediction was recently augmented by Matthew Quirk's article in the October 2008 Atlantic Magazine entitled "Blowback." Moreover, after reading this article, I now more clearly see the direction that this patenting gold rush might take. As an IP Business Strategist (more info here: The Hutter Group), I believe the future of patenting activity related to The Pickens Plan does not center on wind turbines themselves, but rather in the technologies that do not yet exist that are critical to making Mr. Pickens' alternative energy dream possible.

Mr. Quirk's article generally criticizes the use of wind power for as a fundamental component of US energy policy. A substantial aspect of his criticism centers on the lack of technology currently available to allow wind power to comprise a consistent and reliable source of US power. Mr. Quirk asserts that "there are many kinks left to be worked out." This criticism provides an outline of technology development that must occur for The Pickens Plan to work.

I am not an energy expert by any stretch of the imagination, but reading between the lines of this Atlantic article's criticism of The Pickens Plan, as well as the outlines of the related CNG Now program, at least the following issues must be successfully addressed for wind and natural gas to become viable alternative energy sources in the US:

• Improved means to store electricity formed by wind at times of low use by the public
• Efficient and low-impact ways to ramp up and power down power plants
• Better ways to transmit power over long distances without substantial degradation
• Improved methods to efficiently deliver and safely store natural gas for broad use by the public

Solutions to these problems will no doubt give rise to patentable technology and those entities investing in these solutions will seek to protect their investments by obtaining the exclusive rights afforded by patents. I believe that such patenting activity could operate as a primary source of firm value for those companies that are seeking to capitalize on The Pickens Plan's implementation. Moreover, investors hoping to select companies with technology likely to form a foundation of the alternative energy infrastructure can predict the winners by using patent filing information to inform their investment decisions.

Regular readers of this blog will recognize that investment decisions can be greatly improved (that is, made more "reality based") by analysis of patent filing information. When properly collected and analyzed, patent filing information will provide insights into the viability of technology and the value of companies that own such patented technology. The technology associated with The Pickens Plan is no different: if you want to predict the winners in the alternative energy game, follow the patents.

Using Patent Landscaping Analytics to Improve the Quality of M & A Decisions: A Review of Cox Enterprises' $300 Million Purchase of Adify

Many companies today enter new product or technology markets through acquisition. However, this is far from a sure-fire plan for business success. For example, in 2006, Inc.com reported that 60-70 % of acquisitions fail and more than 90 % of acquired businesses lose value. These somewhat dismal results leave no doubt that acquiring companies need better sources of information to properly vet and select acquisition targets.

Of course, companies typically conduct extensive pre-deal research to identify good acquisition targets and use the M & A due diligence process decide whether to consummate the deal. However, such efforts are inherently limited because much about the target will remain unknown until the acquisition is completed. There can nonetheless be no doubt that more sources of relevant information will improve the probability that the acquiring company will make a better decision about completing the deal. Since the degree of competition to be faced in the target product or technology space is key to the ability of the acquiring company's ability to meet its financial targets from the acquisition, new sources of competitive information could improve the outcomes of M & A's.

One source of competitive information that few acquiring companies tap is patent landscaping analytics based upon third party patent filing data. As shown in the below example, such data can provide a window into the competition (or lack thereof) that an acquiring company could face as it enters an unfamiliar market.

In March of this year, Cox Enterprises purchased Adify, a vertical ad network technology company. Cox paid $ 300 million for Adify, even though the company had only $7 million in revenue in 2007, and a projected $35 million in revenue for 2008.

Was Cox correct to pay this significant multiple of Adify's existing revenue to gain entry into the vertical advertising market? Only time will tell, but the patent filing data I obtained indicates that several sophisticated companies have already staked a significant claim to the vertical advertising market. The chart below identifies major players in this area as identified by patent landscaping analytics from patent filing data.

A short explanation of the source of the above data is first in order. The data was obtained from a search of published patent applications and issued patents pending as of August 2008 in the US Patent Office. Duplicate and abandoned filings have been removed, and assignment information corrected by manual checking of updated assignment records. Additionally, although Google and DoubleClick patent documents are separately listed in the US Patent Office assignment database, filings for these two companies were combined because Google acquired DoubleClick in 2007. Similarly, BellSouth's filings were combined with AT & T's as a result of the former's acquisition of that company in late 2006. Approximately 138 unique patent filings were identifed in the search, however, only those documents assigned to companies considered to be major potential competitors to Adify are included in the above graph.

It is apparent that Google has established a solid presence in vertical advertising with its 15 patent filings that date earlier overall than other filers. Right behind Google is AT & T with 11 patent filings that go back just a couple of years. Not surprisingly, Yahoo has established a presence in vertical advertising with 5 filings. Microsoft and Apple only have only 1 application each. Capital One has established a small presence, presumably in support of its aggressive credit card marketing efforts. Notably absent from the above filing data is Adify: Cox paid $300 million for a company with no visible technology advantage as would be apparent from patent filings.

For an IP Business Strategist such as myself, this patent filing data can provide remarkable insights into whether Cox's purchase of Adify was a good long term investment.

First, the Google and Yahoo filings indicate that these companies are likely actively innovating in the area of vertical advertising networks. Google's 15 total filings spread out over the course of several years show that Google is undeniably serious about competing in this market, and that it may own dominant rights to basic technology as a result of its acquisition of DoubleClick's early patent rights. Such early rights could also mean that Adify may need to seek a license from Google for the mere right to play in the vertical advertising market.

Moreover, the rights owned by AT & T could also be a concern for Cox, because AT & T (through its acquisition of BellSouth) conducts an aggressive patenting licensing program. The AT & T rights could indicate that Cox may need a license at some time in the future, again for the mere right to play in the vertical advertising space.

The absence of Microsoft and Apple from the filing data show that to date these companies likely have not made a play for the vertical advertising market. This assumption should be valid because both of these companies are significant patent filers.

In sum, this patent filing data shows me that Cox may experience difficulty in freely operating in the vertical advertising space due. My opinion that Cox may face significant competitive threats in marketing vertical advertising networks is not due solely to the patent filings themselves. The number of patent filings signals a seriousness by the patent filer: a well-managed company does not file several patent applications in a single technology area unless there is a business reason for doing so. We can then assume that Google, Yahoo and AT & T each hold business plans to compete in this market in a substantial way. Put simply, even though Cox paid $ 300 million for Adify, it may not have "permission to play" in this market due to the presence of serious competitors such as Google, Yahoo and AT & T.

(Interestingly, Google this week confirmed that it is as serious about competing in vertical advertising as the patent filing data discussed above indicates. Google is partnering with NBC Universal to establish vertical advertising that competes directly with Cox in the cable advertising realm.)

I have no way of knowing whether Cox performed a third party patent landscape assessment before buying Adify, however, I would tend to doubt that it did because this is not a normal aspect of patent due diligence. And, even with this information, Cox may still have moved forward with its purchase of Adify for good business reasons. It is nonetheless my opinion that this third party patent filing information related to Adify's core product offering signals that Cox will face a hard road to establish market share against sophisticated and obviously serious competitors such as Google, Yahoo and AT & T. Only time will tell if Cox is able to beat the dismal odds of a successful financial payoff for its Adify acquisition.

For companies seeking to enter a new product or technology market, the patent filing data associated with Cox's acquisition of data should serve as a cautionary tale. Such information is hiding in plain sight in the patent offices of the world. This patent filing data is not so complete to comprise a "crystal ball" for businesses, but such third party patent filing information can serve as a useful tool to gauge the amount of competition that an acquiring company may face in executing on the business plans upon which the acquisition is based. Given the low probability of success from corporate acquisitions, adding this tool to the patent due diligence toolbox can only help.

Learning from Microsoft's Hard Trademark Lesson: Your Company Needs a Multi-Faceted IP Strategy

This New York Times article entitled "A New Battle is Beginning in Branding of the Web" demonstrates that companies such as Microsoft and Dell are adopting aggressive Intellectual Property (IP) strategies that include forms of legal protection others than patent rights. The basis of this approach might not be obvious to those who consider these companies "technology companies" at their respective cores. That is, the product lines of Microsoft and Dell (and their counterparts) might more logically be considered by some to be the subject matter for patents, as opposed to trademarks. Nonetheless, the article confirms that more and more companies are reaching outside of the traditional mode of technology patent protection to develop comprehensive IP strategies directed toward creating IP value in multiple dimensions. It is interesting to find out that Microsoft apparently learned the lesson of the need for an IP strategy by almost making a colossal mistake about its Windows(R) trademark.

As detailed in the article, although Microsoft first introduced its Windows software in 1985, it did not file a trademark application until 1990. The U.S. Trademark Office initially rejected Microsoft's trademark application because it found the "Windows" mark "merely descriptive" in relation to computer software. Significantly, Microsoft's delay in filing for trademark application worked against it in the Trademark Office: by 1990, many people associated the Windows interface with the way in which the software displayed the user's desktop. Microsoft kept arguing its case, and in 1995 the Trademark Office granted the Windows trademark application. In the meantime, Microsoft continued to gain market share for Windows software, and it would no doubt have been a huge blow to their marketing plans if the trademark had not been granted.

A critical take home from Microsoft's experience is that its delay in filing for trademark protection resulted in its almost destroying the brand equity developed in the first years of its initial introduction of its Windows products. These were the years that Microsoft was gaining ever increasing brand recognition of its software product. If the Trademark Office had ultimately refused to issue the Windows trademark, Microsoft would have ended up with virtually no proprietary rights to the "Windows" name.

One cannot predict what might have happened if the Windows trademark had not been granted, but certainly Microsoft would have been in a different competitive position if it had to introduce a new brand name at that time, along with its new software products. That is, would Microsoft be where it is today if it did not brand its game-changing mid-1990's product as "Windows 95?"

Fast forward a few years, and one can see that Microsoft learned from its errors with the Windows trademark. Today, the company is taking an aggressive approach to branding its Internet platform products. For these platform offerings, Microsoft is seeking protection of the "Live" moniker to many of its products, such as : "X-Box Live," "Windows Live" and "Live Mesh." Microsoft's expectation is that not only will the public identify the "Live" designation as being an Internet specific product, but also that mere association of the word "Live" with another tech-type application will cause a person to recognize that combination of words to signify a Microsoft offering.

To an outside IP expert such as myself (more info here: The Hutter Group), it is evident that Microsoft now recognizes the power of trademarks in developing and executing on a value creation-directed IP strategy. It should be noted, however, that Microsoft does not value trademark protection over patents. To the contrary, Microsoft aggressively protects its technology innovation through patent filings. In 2007, Microsoft obtained 1637 patents, which put it in the top 10 companies issued patents in the U.S. Microsoft also has agressively protected its IP through copyright and trade secret rights over the years. In sum, there is no question that Microsoft protects its IP however it can as part of its strategic business plan.

Many technology-oriented companies, especially those in the start-up mode, may not recognize the make or break value that a trademark can have on their ability to make inroads into a crowded market. Rather, these often cash-strapped companies believe that if they are going to spend any money on IP protection, that money should be spent on protecting their technology by way of a patent. Microsoft's near-miss with the Windows trademark, as well as its subsequent aggressive stance toward protecting its trademarks, copyrights and trade secrets as part of a comprehensive IP strategy, should serve as a hard lesson for other technology companies.