An interesting article about PatentVest. It was published in Investor's Business Daily so some of you probably won't understand it.
Patent Applications Leave Clues About A Company's Prospects
By BRIAN DEAGON, INVESTOR'S BUSINESS DAILY Posted 04/01/2010 06:12 PM ET
In the late 1990s, Apple (AAPL) was near death. Then in 1997 Steve Jobs returned to the company he co-founded and set the stage for its rebirth.
Anyone searching for signs of that comeback might have checked the patent office.
In 2003, Apple filed for 124 new patents, up from 101 the year before. The pace rose to 177 patent applications in 2004 and 285 in 2005, says patent tracker PatentVest.
"A leading indicator of future performance is innovation, which you can base on the rate of growth of patent applications," said PatentVest CEO Andy Mazzarella.
Today, Apple is viewed as one of the most innovative companies on the planet.
Scrutinizing patents is one tack analysts use to gauge company innovation and direction. An analysis of Apple patents in 2009, for example, indicates plans to turn its Apple TV system into a gaming device, though the company hasn't confirmed any such plans.
But it's tough to track patent activity. That's why PatentVest exists, Mazzarella says.
The U.S. Patent and Trademark Office says Apple was granted 185 patents in 2008. But Mazzarella says the actual number is close to 260.
How's that? For one thing, many patents are filed under the inventor's name and may not reveal a connection to a company. Misspellings or other variances in the name of a company or inventor can also hinder patent tracking.
"All patent data is highly flawed when first made available by the patent office, making ownership hard to establish," Mazzarella said.
At times, companies will deliberately try to cloak a patent application. "They don't want outsiders to know they made steps in particular direction," Mazzarella said.
PatentVest spent four years building a database and data center that collects and analyzes patent information on multiple levels. It can link individual inventors to a parent company, even if the track goes through many subsidiaries.
Now it's hoping to sell its service to mutual funds, hedge funds and others looking for a leg up on finding good investments. The data are not for sale to individual investors, but they might be down the road. Santa Monica, Calif.-based PatentVest is a unit of MDB Capital Group, a research firm and investment bank specializing in intellectual-property-focused investments. MDB funded PatentVest and uses the technology in its decision making.
"We track the employment history of every inventor," Mazzarella said. "When we see a patent by that inventor that's not assigned to a company, our system can make a prediction where that patent might get assigned to. We're not 100% certain of all our data all the time, but we're 90% certain it's accurate."
The system looks at which patents are most often cited or cross-referenced by other patent filers. The higher the citations, the more valuable that patent is considered to be.
PatentVest keeps tabs on what it perceives to be the most innovative companies. Often these are companies out of the spotlight.
Mazzarella says innovative companies on the path to success will show strong growth in patent applications, usually one to two years before they make it big. That was the case with Apple's rebirth.
Companies, though, can trip despite strong IP.
Case in point is Palm (PALM), the developer of smart phone technologies. Patent applications by Palm began a steep climb in 2006 and continued through 2009. In December 2008, company shares were trading at an all-time low below 2. The next month, Palm announced a new operating system, WebOS. Analysts called it a breakthrough technology. Company shares surged more than 700% over the next six months when, in June, Palm introduced the Pre smart phone, to mostly good reviews. "We have officially re-entered the race," Palm CEO Jon Rubenstein declared at the time.
But rivals such as Apple and BlackBerry maker Research In Motion (RIMM) were innovating as well. And a slew of handsets based on the Google-backed (GOOG) Android operating system started hitting the market about the same time as the Pre. In November, Motorola (MOT) introduced its Android-based Droid for the Verizon Wireless network, backed by a $100 million Verizon ad campaign.
All this took a toll on sales of the Palm Pre.
Last month, Palm warned that sales this quarter would be less than half of what analysts had been predicting, saying that "broad consumer adoption of Palm products is taking longer than we anticipated."
Palm's stock is languishing below 4, and some say a buyout is the company's only hope for survival.
"The Palm example is one where strategy and execution has not worked well," Mazzarella said. "Strong intellectual property alone is not sufficient to be successful. If you do a poor job of executing, you can still run the company out of business."
