Investing in intellectual property is hot. Many investors are looking for companies that could be the future winners in monetizing IP. I am one of these investors that is attracted to this specific investment space.
My last article Marathon Patent Group An Intellectual Property Stock Ready For The Future about IP-related investments was published on July 17, 2013. This is my third article about this specific investment space and this time we will have a look into a company called Spherix (SPEX).
High-risk appetite investors and traders could place their bets on an IP company called Spherix. This emerging IP company will likely succeed going forward.
SPEX is a stock that you want to watch closely going forward. It is currently trading at $9.95 after a rally of more than 26% last Monday. Despite this gain, the stock is still far from its 52-week high of $14.99, so there is definitely more upside potential. With the IP investment space booming many private and professional investors are looking for the next gem and are willing to place a bet on companies which seem to have a valuable IP portfolio or are in the process of acquiring one.
Spherix Incorporated is an intellectual property development and life sciences company. The company operates in two segments: Biospherics Incorporated, biotechnology research and development, and Health Sciences, a technical and regulatory consulting business. The recent IP acquisitions will change the nature of the company drastically.
The company announced on July 29 that it has closed an agreement to acquire a group of seven patents in the mobile communication sector, from Rockstar Consortium, the owner of over 4,000 patents formerly owned by Nortel Networks.
Spherix Interim CEO Harvey Kesner stated,
"We believe that we have entered a new phase of our development and are pleased to announce successful completion of our recent patent and monetization partnership with Rockstar. We have been working with our colleagues at Rockstar to identify opportunities for collaboration between us and this resulted in the selection of this suite of seven patents that cover mobile communication devices. We selected a suite of patents with well documented and easily understandable technology so that we can quickly proceed to seek agreements to support commercialization efforts and enforcement, if required. This acquisition, coupled with our recently announced acquisition of several hundred patents issued to Harris Corporation, allows us to expand our activities in the wireless communications and telecommunication sectors including antenna technology, Wi-Fi, base station functionality, and cellular. Our incoming CEO Anthony Hayes was instrumental in negotiating these contracts and securing appropriate patents for enforcement. As has been widely reported, Anthony is a seasoned monetization executive with numerous 'wins' under his belt, who will oversee our licensing and enforcement efforts and has broad access to patent owners and inventors."
Spherix recently announced an agreement to acquire 222 patents from North South Holdings that covers a wide range of growing industries. The Harris portfolio also has applicability in law enforcement communications, military and homeland security.
Spherix has been transforming itself in a new IP power house with two major institutional investors backing it up. Hudson Bay Capital Management and Iroquois Capital Partners, two well known IP investment firms.
The Company's Transformation
The company filed with the SEC that it had entered into a Letter of Intent to purchase North South Holdings. A subsidiary called Nuta Technologies will issue 12 million shares of the Parent's common stock in order to acquire 100% of North South.
On July 1, the company sold 100,000 shares at $5 in a private placement to raise $500,000 for expenses related to the acquisition of North South. More importantly, the press release provided more details on the acquisition.
Spherix will have a market capitalization of around $180 million when everything is consummated.
Investors have several other choices to choose from when investing in the IP-space. Most of these choices I already described in my previous articles, but if you want to allocate money in a broader IP portfolio you can have a look at the following names.
Vringo, Inc. (VRNG) is engaged in the innovation, development and monetization of intellectual property and mobile technologies. Vringo`s intellectual property portfolio consists of over 500 patents and patent applications covering telecom infrastructure, internet search, and mobile technologies. The patents and patent applications have been developed internally, and acquired from third parties. Vringo operates a global platform for the distribution of mobile social applications and services.
Vringo is an opportunity that deserves some credits. Last week the U.S. Patent and Trademark Office said that it had confirmed the validity of a Vringo Inc. search engine advertisement patent that was at issue in a $30 million infringement verdict last year against Google Inc (GOOG) and other companies.
The patents describe a ranking system used by search engines to target ads at consumers. The suit focused on Google's use of "quality scores" to rank ads, which combine an ads' content relevance to a search query along with click-through rates from previous users.
Other companies discussed in my first article Intellectual Property: Hype Or Real Deal? are also companies that profit from the rising interest in IP-investing. I will describe them briefly.
Acacia Research Corporation
Acacia Research Corp. (ACTG), through its subsidiaries, acquires, develops, licenses, and enforces patented technologies in the United States. It assists patent owners with the prosecution and development of their patent portfolios; protection of their patented inventions from unauthorized use; generation of licensing revenue from users of their patented technologies; and enforcement against unauthorized users of their patented technologies. The company owns or controls the rights to approximately 250 patent portfolios, which include the United States' patents and foreign counterparts covering technologies used in various industries.
The company is already a money making powerhouse that has a dividend yield of 2.2%. As of June 30, 2013 the company had $320 million of cash and investments, short term receivables totaled approximately $70 million and they have no debt on their balance sheet.
The last week they had four settlement agreements.
Another company worthy to look at is RPX Corporation.
RPX Corporation (RPXC) provides patent risk management solutions in the United States, Japan, and internationally. The company offers a subscription-based patent risk management solution that facilitates exchanges of value between owners and users of patents. It provides a defensive patent aggregation in which it acquires patent assets to provide clients with licenses to protect them from patent infringement assertions. The company also offers its clients with access to its proprietary patent market intelligence and data. Its clients include companies that design, make, or sell technology-based products and services, as well as companies that use technology in their businesses.
Second quarter results were better than estimates, but the company didn't raise their expectations and stayed with their full-year earnings guidance, which was $50 million to $53 million.
The Importance of Intellectual Property Assets
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.
While technology has been seen as one of the engines for the dramatic economic growth and productivity the United States has experienced over the last several decades an underlying factor has been the strength of the intellectual property developed during that period. Intellectual property provided the basis for investors to place their resources at risk.
The economic value of a patent must be carefully weighed in the analysis of which IP companies deserve any investment. Not all intangible assets are equal. The investor must use consistent techniques for valuating the intangible assets and take decisions on when and whether to invest based on such valuation.
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. An emerging company such as Spherix is going to benefit from this going forward and could be the next big thing in the IP space.
More research on Spherix's patents is necessary for conservative investors to climb aboard, but the North South portfolio and the recently announced Rockstar deal gives the company a great start to build a sustainable IP monetizing business.