Patently absurd.

Patent fever is becoming patently absurd. Maybe we are about midstage in a scramble to pile up as much money as possible and burn it. I just hope that the burning ink doesn't cause too many harmful emissions.  Owning patents for the sake of owning patents is a poor business decision, so it is likely a poor investment decision too.

This is the type of market activity that should cause investors to walk in the other direction, but many people who fancy themselves value investors are probably getting excited about this. Value traps like Eastman Kodak suddenly have value. Now anyone can look at a tech company and be caught by the siren call of patent portfolios. You can't really value a patent unless you see it helping a company extract additional money from its products, but it seems like people are finding ways.  Bloomberg has an article about Eastman Kodak being worth oodles of money because of its patents. One guy claimed the patents were worth at least $3 billion.  The article also attributes the following quote to him:

“Kodak is the lowest hanging fruit out there,” Chris Marlett, chief executive officer at MDB Capital, a Santa Monica, California-based investment bank specializing in intellectual property, said in a telephone interview. Kodak’s patents “could go for a huge number and nobody’s talking about it,” he said. (link)

That's Bloomberg's money quote. That's the quote. The emphasis is about all I saw. This is a transaction driven "bubble" and the attribution of that insightful quote is all you need to see realize that. This is a total fee frenzy that every party with something to gain is going to be talking up to anyone that will listen.

The wider this patent nonsense net gets cast, the more likely people will make poor decisions with their money. None of this makes any stock interesting. Mark Cuban was prescient in stating in a WSJ interview last week that, "it’s gotten so bad that big companies are buying patent troves to act as a nuclear deterrent to other big companies with their own patent troves.”

What should be pointed out to people trying to speculate on what company will be bought next as a nuclear deterrent is that each time an "implied value" is able to be calculated as a result of another deal, the actual value of an unacquired patent falls. There are only so many large cap tech companies with excess cash looking to stock up on nuclear armements. When they've had enough, the leftover patents will just be worth what the company earns from producing products protected by that moat.This all reminds me of the story of the sardine speculator that Seth Klarman shares at the beginning of the Bible:

There is the old story about the market craze in sardine trading when the sardines disappeared from their traditional waters in Monterey, California. The commodity traders bid them up and the price of a can of sardines soared. One day a buyer decided to treat himself to an expensive meal and actually opened a can and started eating. He immediately became ill and told the seller the sardines were no good. The seller said, "You don't understand. These are not eating sardines, they are trading sardines."

While companies like Google and Apple/Microsoft/RIM aren't speculating with their patent purchases, people purchasing shares to profit from this wave can't possibly be investing. All the money chasing this theme is chasing sardines. The acquiring companies aren't incorporating any of this into their products. I'm sure there is a cute anecdote their PR machines will concoct to riposte such an accusation. Now quite frankly, spending billions of dollars on something to not use is foolish. I should point out that use is an anagram for sue. A company does gain something in the sense that they can now deter some of the uncertainty that results from potentially being sued and the potential damages/back royalties/whatever the cost is due to litigation. They'd all gain from not being such punks. I think academics refer to this type of stuff as a Nash Equilibrium.  There's no space for an investor to benefit though.

For all this patent speculation, I would venture that RIM has the most actual value because of its security features and messaging system. Those aren't nuclear deterrent patents though. Those have actual value, which is ironic. For better or worse though, management has a large stake in the company so the company is not going to be taking that route any time soon, so extrapolating some value of the patent portfolio out 4-5 years is pointless when the company will either be toast or the toast of the town. Useless patents might not be such hot commodities by then.  But who knows, maybe companies will be purchasing useful patents in 4-5 years time, or maybe they won't exist at all.