Back in May, I put you on alert that Wall Street was about to unlock trillions of dollars of untapped value.
Unknown to many, this value is tied up in intellectual property (IP) or patents on corporate balance sheets.
I shared VirnetX Holding Corp. (AMEX: VHC) as early proof of this imminent trend.
Since the company was formed in 2006, with the sole purpose of monetizing a portfolio of 19 patents from SAIC, Inc. (NYSE: SAI), management has turned a $35 million investment into a $1.7 billion treasure.
In recent weeks, though, I’ve seen even more proof of the patent trend. And it’s unfolding much quicker than I anticipated, so the investment opportunity is much more urgent than before.
Here’s the proof – and most importantly, two compelling ways you can play this trend…
The Biggest Patent Auction in History Just Went Down
In January 2009, North America’s largest maker of telephone equipment, Nortel Networks (NYSE:NTL), filed for bankruptcy protection.
You’d think that would’ve immediately wiped out the company’s value, right?
Earlier this month, the company’s portfolio of 6,000 wireless and internet technology patents and patent applications fetched $4.5 billion.
To put that figure into perspective, Nortel only received $3 billion for selling off most of its businesses in bankruptcy. In other words, the company’s ideas ended up being worth 1.5 times the value of its actual operations.
As David Descoteaux, Managing Director of Lazard, sums it up, “This [deal] has woken up the world to what IP means and how companies think about ways of monetizing intellectual property.”
I’ll say! And last week, we got another big wake-up call…
Google Refuses to Lose
A consortium of tech giants (including Apple (NASDAQ:AAPL), Research in Motion (RIMM), Microsoft (NASDAQ:MSFT), EMC, Ericsson (NASDAQ:ERIC) and Sony (NYSE:SNE)) ended up winning the auction for Nortel’s patents. Heck, they even managed to send the early front-runner, Google (Nasdaq: GOOG), home empty-handed.
But Google didn’t give up. Instead, the company went on the hunt for other attractive patents. And early last week, news broke that the company had its sights set on InterDigital, Inc. (Nasdaq: IDCC) – a company that boasts 8,800 patents and 10,000 patents pending.
InterDigital shares soared 98.7% higher. And that’s before any deal has been finalized.
Of course, longtime readers will remember that in November 2010, I profiled InterDigital, stating that with its attractive valuation and extensive patent portfolio, “I wouldn’t be surprised one bit if it received an unsolicited takeover offer.”
Those who saw the value of patents early and acted on my advice to “pick up a few shares before they take off” are now sitting on a 147% gain – and counting.
If those gains – and Google’s latest maneuvers to secure patents – don’t prove to you that there are profits to be made by investing in this trend, maybe an endorsement from legendary investor and corporate raider, Carl Icahn, will help…
It’s Motorola’s Turn to Profit From Patents
In an SEC filing last Thursday, Icahn, Motorola’s Mobility’s (NYSE: MMI) biggest shareholder, revealed that he wants the company to monetize its portfolio of 17,000 patents and 7,500 pending patents.
Icahn said Motorola’s patent portfolio is “substantially larger” than Nortel’s. And he warned management against spending too much time focusing on its operating businesses instead of maximizing the value of its patents.
With good reason, too. Because ultimately, he believes that if management unlocks the value of the company’s patents, the company would be worth $13 billion, or about $44 per share.
That’s roughly 80% more than its current value!
Since the final value of Nortel’s patents significantly exceeded initial estimates, it’s safe to assume that the same will hold true for any future deals for InterDigital or Motorola Mobility.
Bottom line: Start positioning your portfolio to profit from patents immediately. If you wait, I’m convinced you’re going to miss out on one of the biggest opportunities of the next decade.