Trading on the Differences

Uncertainty is not a Bad Thing, it is Opportunity.

Every time you see a news story or read a blog about a topic you know very well, it is amazing that the stories have lots of factual problems. This is not a problem, it is opportunity.

For many years, I have been offended by how much the “common wisdom” in patent law differs from what I see inside the game. I know that provisional patent applications are always wrong for startup companies, but the “common wisdom” is to file provisionals – and people keep doing them.

I have written countless posts about all sorts of problems in the patent world, but I feel like I am the prophet in the wilderness. And I truly am. The industry has a self-serving point of view, from the patent attorneys and big firms that relentlessly need to bill more and more hours, to the USPTO who has a financial interest in examining more patents.

An Inventor Fails to Pay Patent Maintenance Fees – And We Are Supposed to Feel Sorry for Him?

A friend sent me an article from the IEEE about the IP system, which explained how the inventor was unsuccessful in monetizing his invention. The article even mentioned that the inventor was dependent on Social Security instead of the (presumably) mountains of cash he would have received for his invention.

Of course, the story was about an inventor who let his patents expire for not paying the maintenance fees, and then discovered (presumably after the fact) that they would have been worth something. The inventor then had a long legal fight, which he ultimately lost, but only because he failed to make a required payment and wanted a ‘do-over.’

The article was factually incorrect in almost every characterization of the patent process, the motivations of the players in the game, and even the reasons what the set of lawsuits was trying to address.

When I read the article the first time, all I saw was errors and issues that were poorly researched and poorly described. In order to sensationalize the story, the writer had to make something out of it, so there were

The second time I read the article, it occurred to me that this is opportunity, not a problem.

Opportunity in a Sea of Misinformation.

The more misinformation and sensationalizing is out there, the bigger difference between what I know is true and what other people believe is true. In theory, if I “know” something that someone else believes is different, I have the opportunity to trade on that.

If I own a stock and I believe it has run its course and I want to sell, there is always someone else who is willing to buy. The process of price discovery (the stock market) is where my sale price and the buyer’s purchase price are met.

I came to the realization that the more misinformation there is about patents and IP protection in general, the better it is, at least from my self-serving standpoint.

All these years, I was “fighting the system” and trying to “educate” people about IP. Not only was it pointless, it was counter productive.

I Trade on Patent Value.

BlueIron’s sole business model is to identify valuable IP and loan against it. From a macro view, you can say that we trade on patent value. We identify valuable assets and we can loan against them, but we do not loan against the rest.

We look at countless patent portfolios and can be quick to find problems that make the patents worthless. However, the patent owners (and their investors) are making very large business decisions based on IP that I think are worthless, and it just breaks my heart.

I used to feel the need – the calling even – to give my point of view. Now I don’t say anything. I just pass on the opportunity.

I Didn’t Realize that Uncertainty is a Good Thing.

AON entered the IP-backed lending business with some very smart and sophisticated talent. AON had done over $1B of IP-backed loans by March 2023, and had additional commitments of $300M to go even further. In less than 14 months, the entire 250 person team that did IP-backed lending AON was laid off.

I am friends with many of the AON people, and they had a great talent pool in the IP space. There was some shenanigans in the insurance market that caused the project to auger in, but there were plenty of lessons that were learned by the exercise.

Some of the other IP-backed lenders had worried that AON’s exit would poison the water for everyone else, and justifiably so. Certainly, people who have heard of AON’s troubles are more skeptical, and there are fewer people in the business than before.

However, that drives lenders out of the market due to the uncertainty. That means fewer lenders and more opportunities for us to find those excellent candidates. With fewer competitors in the space, there is more opportunity to prosper.

Unsophisticated Patent Owners Get What They Deserve.

It is easy to outsource patents to a patent attorney, who is always happy to take the money. But it is always the patent owner’s responsibility to manage the portfolio.

Most startup CEOs intuitively know that IP is supposed to be valuable, but they have few tools to manage it. Very few CEOs actually know how to build and manage an IP portfolio, or who know enough to get the right people to do it (hint: it is never the patent attorney who writes the patent).

But those who actually manage their IP well have an extraordinary asset. Those that did not do it well pay the consequences. More precisely, their investors pay the consequences. Sadly, there are countless stories about investors pushing a CEO to get patents, when neither the investor nor the CEO has any experience in the field. To make the gullible investor happy, the CEO obliges and spends several thousand of their precious dollars on the process.

I am having less and less sympathy for patent owners who cut corners on their IP portfolio, or for the investors who have a knee-jerk reaction that assumes a patent is a good thing for a company.

However, when I actually find a CEO with a sophisticated patent strategy, the stars align, and we can help them in ways that their competitors could never imagine.