After several years of writing about how business leaders need to wrest control of their IP matters from lawyers, today brought a revelation that illuminated why this seems to be such a hard point to get across. It should be a no brainer: it has been shown time and time again that when a company aligns its IP strategy with its business strategy, value creation opportunities abound. So, why is it so hard to get business people to sign onto something that is unquestionably in the best interests of their shareholders? It’s simple–patent experts wholly lack credibility with business people on these issues. This lack of credibility is compounded by the fact that these experts are given a forum to trumpet these views through use of their firms’ large marketing budgets, as well as by haphazard journalists who give them a forum to expound their self-interested views without counterpoint.
To this end, my realization was caused by a blog post from my friend Patrick Anderson, the proprietor of the great GameTime IP blog. He posted an excerpt of an article in the National Law Journal, authored by Amanda Bronsted, where Patrick Arnold, a patent attorney at the Chicago law firm McAndrews, Held and Malloy, posited why Google would have bid $6 billion for Groupon, a company with only a limited track record of business success. Mr. Arnold opined that the reason that Google offered so much for Groupon was due to the fact that Groupon owns patents related to its method of doing business. Specifically, the article went as follows:
NLJ: Google’s $6 billion offer is awfully high for a company founded two years ago. What do you think?
PA: My first thought was somebody probably looked at the technology and the patents closely, and felt like Groupon was in a pretty good position and had a strong patent and/or patent portfolio. I would also imagine…that Groupon has at least one patent and maybe others that Google has done some internal analysis of and said, ‘That’s a good patent and would be good for stopping others from getting into the business.’
After (quite literally) falling into a fit of laughter over this “expert” opinion that was apparently accepted with full credulity by the National Law Journal reporter (note the title of the article), the proverbial light bulb went off over my head: of course, the patent attorney credited the huge tender offer to the presence of patents because these are the optics with which he views the world. And, it is wonderful that he thinks patents are so important, but this viewpoint is actually damaging to the ability to get business people to embrace IP strategy as a business value creation mechanism because he looks effectively looks woefully uninformed to someone who makes their living on the business side of M&A.
As explained by Patrick Anderson:
It’s true that Groupon does have at least one patent. They may have others that we don’t know about, for a variety of reasons, but let’s start with what we know, which is one issued patent claiming a specific method for marketing limited time offers that includes “calculating a price … dependent upon … an aggregate amount of … product that … buyers have collectively indicated a willingness to purchase.” Is it possible that Google, a company that apparently can’t muster an offensive counterattack to Oracle, would be interested in this patent to the tune of $6 Billion?
Mr. Arnold’s view is not only narcissistic, it is so ridiculous that it voids any credibility he might have to provide an opinion about how the presence or absence of patents affect (0r do not affect) the value of M&A or other transactions. Moreover, since he has a soapbox from which he can express his ill-formed opinions, people of his stature likely make business leaders look at patent professionals as people who serve a single purpose related to obtaining and litigating patent matters, but who otherwise can be siloed or wholly ignored when it comes to making decisions that drive the long-term value creation mechanisms of the underlying business.
As for the Google/Groupon tender offer: none of us can know how much influence the presence of a single method patent (and hypothetical unknown patents) had on the $6 billion offer. I tend to think that it had very little effect, but I no longer make my living obtaining and litigating patents for business. (For more insight on the business reasons that Google might want to acquire Groupon, and why (in my opinion) Google might be glad it did not get succeed in its tender offer, this James Surowiecki New Yorker article is interesting.)
There has never been–and there will never be–a patent portfolio that is worth anything near this amount. Today, single patents that are infringed sell for no more than several million dollars. When faced with a decision-point to pay $6 Billion to own a patent, to litigate or to design around, any rational business person would not decide to buy the patent. Indeed, it would be utter lunacy to buy one’s way out of infringement of a method patent for much money at all, at least relative to the amount offered by Google for Groupon.
Google, and other acquirers, buy business models, not patents. As we strategy-focused IP people have been saying for years, a patent is worthless unless it covers a viable business model–either yours or one you want to own. Google is interested in Groupon because it offers them an established business model in an area that fits into their long term business strategy. Are the patents nice to have? Of course, but if Groupon didn’t have the patents, Google would still want to own them, and likely for a price in the same neighborhood as it bid. At the end of the day, the Google’s offer for Groupon was a “build vs. buy” decision: Google ran the numbers and believed that it would make more money buying Groupon than by building something from scratch. And, I would expect that Groupon’s refusal to accept the $6 billion means that Google will look around for another company that has a similar business model, and these possible partners may or may not have patents.
As long as patent “experts” like Mr. Arnold continue to delude themselves into thinking that patents are the be all, end all of the business world, business leaders will be able to compartmentalize their viewpoints into the realm of legal opinion, self-interest or both. As a result, IP experts will not get a seat at the table when $6 Billion business decisions are made. This is a depressing thought for me.