Seeking Alpha
Deep value, special situations, contrarian, long only
Profile| Send Message|
( followers)  

(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)

Background

My first article Intellectual Property: Hype Or Real Deal? about the IP-related sector was published on May 3, 2013. This is my second article about this specific investment space and this time we will have a look into a small cap company called Marathon Patent Group (NASDAQ:MARA).

Most of the action in IP investing relates to investments in IP assets. There is a view that patents, brands, copyrights, and other intangible assets have inherent value and investment strategies have been created to capitalize on these assets. Patents are now routinely acquired by investment groups as part of an enforcement and licensing strategy. Because of the vast (and rapidly growing) number of IP assets that are out there, asset-based investment opportunities will always be available.

Patience is needed when investing in intellectual property. The first step is to identify pervasive emerging (technology) trends. Then find companies that hold core intellectual property associated with these growing markets.

Investment Thesis

We think emerging small cap Marathon Patent Group is on the verge of profitability and could become a great investment going forward.

The Company

Marathon Patent Group is a patent licensing company serving a wide range of patent owners from Fortune 500 companies to independent inventors. Marathon provides its clients advice and services that enable them to realize financial and strategic returns on their intellectual property rights. Marathon's operating subsidiaries acquire patent assets, partner with patent holders, and monetize patent portfolios through actively managed patent licensing campaigns. Marathon has maintained a close working relationship for the past 10 years with IPNav, a global leader in full service patent monetization.

The company has a portfolio comprised of eighteen (18) patents in the United States, and thirty seven (37) International Patents.

Success Story

Marathon has already acquired 5 patent portfolios in a span of 3 months -- portfolios that have already generated (prior to acquisition) over 130 licensing agreements for about $55 million in revenues. The reason Marathon is able to acquire such highly valuable assets is because of its partnership with IPNav. IPNav has generated over $600 million in licensing revenues for its clients, and continues to put together lucrative acquisition deals for Marathon. One of the company's active licensing campaigns is already successful and generates cash flow.

Active Licensing Campaigns

The company's IP Licensing Division has several active licensing campaigns.


(Click to enlarge)


(Click to enlarge)


(Click to enlarge)

Cash Flow Is Coming Your Way

On July 10 the company announced that its wholly owned subsidiary, CyberFone Systems, LLC ("CyberFone"), has entered into a license and settlement agreement with of one of the largest payment terminal companies in the United States. We guess this is Verifone.

As mentioned before the CyberFone patent portfolio cover claims that provide the right to practice specific transactional data processing, telecommunications, and network and database inventions, including financial transactions.

This patent portfolio has a well-established history of revenue generation, demonstrating the value of the assets, as well as the widespread applicability across multiple industries. Since the licensing campaign began nearly 20 months ago, the patent portfolio has produced 35 settlement and license agreements. Ongoing infringement continues, and the CyberFone portfolio is currently being enforced against additional defendants.

Historically the average settlement for Cyber Phone has been in the $470-500k range and the portfolio has generated on average, 1.7 settlements a month for the last 16-18 months .

Financing In Place

On June 3, the company announced that it had received $6.0 million in subscriptions for Units. Each Unit was offered in a privately subscribed offering at $0.40 per Unit, with each Unit consisting of one share of common stock and a three (3) year warrant to purchase one-half of one share of common stock at an exercise price of $0.50 per share.

The company intends to use the net proceeds from this offering to fund operations, and continue to seek strategic IP asset acquisitions, including revenue-producing patents and portfolios. The funding was led by IPNav Capital. IPNav Capital was founded by Erich Spangenberg, one of the leaders in the intellectual property monetization industry sector, who also is a major shareholder of Marathon Patent Group.

Marathon is closely aligned with IP Navigation (ipnav.com) and has enjoyed a working relationship since IP Navigation's founding in 2003.

Final Note

New technology trends are constantly emerging, and there is an inherent volatility associated with intellectual property driven stocks. But if you can avoid the hidden pitfalls, there are hidden goldmines to be found. We think Marathon Patent Group is such a company and we are looking for an investment in this emerging IP company

The recent financing will strengthen Marathon's balance sheet and facilitate the acquisition of critical intellectual property assets.

On May 30th Marathon announced that its wholly owned subsidiary, Bismarck IP, had acquired three U.S. and ten international patents and patent applications from Siemens, one of the world's leading electronics and electrical engineering companies as part of a previous agreement.

The company is actively seeking new IP which will drive the company's performance the years to come.

We expect the company to become profitable in the nearby future (Q3), which will be beneficial for the stock price.

Risks

Enforcing patents can take years of costly litigation; it requires adequate cash flow and cash reserves-even to defend dubious claims. Worse yet, litigation often has interim results which are at odds with what reasonable analysis would have predicted, leading in some cases to very large, unpredictable share price movements.

More often than not, however, these pitfalls of intellectual property investing can be mitigated by sophisticated due diligence and specialized expertise. To those who successfully navigate the inherent perils, IP investing offers outsized returns.

Source: Marathon Patent Group: An Intellectual Property Stock Ready For The Future