The Facebook $16 Billion IPO: What role did IP play?

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On this bright Friday morning, everyone in Silicon Valley, Wall Street and the tech industry are a buzz with curious interest and passionate analysis of how Facebook’s IPO will play out. Initially priced at $38 a share, Facebook’s stock opened at around $43 before slipping down to below $39 by midday. Where things will sit at the end of the day remains to be seen, much less the long term value of the stock over the next weeks and months. There are plenty of financial analysis blogs out there giving detailed advice and opinions on whether to buy and what strategies to use, PracticalStockInvesting.com gives a good synopsis of the numbers for those who aren’t experts.

What we are most interested in, is the role that intangible assets and patents have played in Facebook’s valuation, and how their IP portfolio aligns with their business strategy. There is no question that a company’s intangible assets are carefully evaluated and scrutinzed prior to an IPO, and in their SEC filing Facebook acknowledges the risk that it can bring:

If we are unable to protect our intellectual property, the value of our brand and other intangible assets may be diminished, and our business may be adversely affected.” (SEC Filing

Many have speculated that Facebook’s acquisition of 650 AOL patents and patent applications from Microsoft was a move to protect and defend itself from the recent patent infringement suits filed by Yahoo. Others believe that it is part of a larger strategy that has evolved over time, developing a robust portfolio to defend against other potential competitors as their business model grows and potentially pivots. Their portfolio has definitely been achieved through acquisition, that is clear: of roughly 1400 issued patents and patent applications, less than 50 have been filed by Facebook. Although the Microsoft deal was certainly the biggest, they spent a considerable amount ($40 million) on Friendster’s patent portfolio back in 2010, as well as lesser acquisitions from Hewlitt-Packard and Walker Digital (TechCrunch, April 2012). A reoccurring critique of the high valuation of Facebook is their existing revenue stream – advertising on the platform is steady but has yet to be widely proven or endorsed, with the example of GM ending its campaigns just this week.  With the IPO, investors will want to see more rapid growth which will likely need to be driven through advertising, new technology acquisitions, better penetration and monetization of new markets, and perhaps extensions or pivots into new product markets. A robust patent portfolio will certainly help support Facebook in achieving such objectives, and it is shortsighted to think the recent acquisitions are in response to the Yahoo lawsuit alone.

The interest in social networking technology patent portfolios will continue to be a growing market, perhaps eventually rivaling that of smart phone technology. AdaptIPVentures and WorldNetworks Inc (patent brokerage and social media technology companies respectively) just issued a press release announcing that WorldNetwork’s patent portfolio is up for sale, likely timed to capitalize on the buzz and interest surrounding the Facebook IPO. Are more such blatant advertisements to follow?

With the rise in transactions surrounding social technology patent portfolios one thing is for certain – companies whether large or up and coming start-ups, should have a comprehensive knowledge of what is currently in their portfolio, and how it is aligned with their business strategy. IPfolio offers easy to use, cloud-based IP management software for companies small and large, with growing IP asset portfolios. Contact us for more information or learn more about IPfolio’s software on our website.

 


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