Exclusion of two prominent patent holders will make the IP CloseUp® 30 index of publicly held IP companies (PIPCOs) more relevant.
ARM (ARM.L) and Qualcomm (QCOM), while strong, patent licensing companies with excellent IP portfolios, have been removed from the IPCU 30 because their large market cap, $14 billion and $131 billion, respectively, dwarfs the others in the index and can cause a weighting issue. Most of the companies in the index are public patent licensing companies that are much smaller. Modest settlements and licenses, or even a good day in court, can move their shares dramatically.
In contrast, a recent trial loss by Qualcomm to ParkerVision (PRKR) for $173 million, the largest patent award of 2013, caused barely a ripple at the San Diego-based chip maker, which has $45 billion in assets on its balance sheet. (Ironically, PRKR shares were down significantly because of pumped-up expectations leading up to the decision.)
Measures of Performance
It is our hope that a wider range of IP-centric companies will eventually be included in the index, including those that do not out-license but nonetheless generate good returns on their patent portfolio and enhance overall performance. (Maintaining market share and profit margins ought to count somewhere other than on the bottom line.)
For now companies that will be included fall in the range of approximately $1 billion market value or lower. These are the IP businesses that — for better or worse — will tend to be hyper sensitive to their patent licensing and enforcement activity, to the extent that it is understood by investors.
Removal of the three companies will make performance comparisons easier. Suggestions for additions or changes to the index are welcomed. We are planing a more quantitive look at some of the companies in the index in the 2Q.
Patent Properties, formerly GlobalOptions Group, Inc. (GLOI), can now be found under the symbol PPRO. It’s CEO, Jay Walker, previously founded Priceline.com.