This week’s PLI seminar, IP Driven M&A, highlighted the important role intellectual property plays in determining the value of a company or in strategizing a merger or acquisition. The intangibility of IP is no longer viewed as a hindrance to its monetization, thus it is now treated like any other corporate asset. If purchasers are now recognizing IP as a part of their strategic due diligence, it makes sense that a major AOL shareholder is bringing IP mismanagement issues to the attention of their company’s board of directors.
According to news reports, AOL investor, Starboard Value LP, filed a request to replace five members of the company’s board of directors based on the belief that AOL’s patent portfolio has “gone unrecognized and underutilized”, thus causing Starboard to call for replacements on the board of directors because they feel “increasingly uncomfortable with the direction of the Company and the leadership of the Board.” Leaves one wondering if IP mismanagement is a breach of fiduciary duty on the directors’ part, such that their removal from the Board is the best remedy for the benefit of the shareholders.
Here is an excerpt from Starboard’s letter to the Board, that emphasizes IP monetization as a major producer of potential cash flow.
This portfolio of more than 800 patents broadly covers Internet technologies with focus in areas such as secure data transit and e-commerce, travel navigation and turn-by-turn directions, search-related online advertising, real-time shopping, and shopping wish list, among many others.
Since our initial public involvement in AOL, we have been approached by multiple parties specializing in intellectual property valuation and monetization, some of whom believe that (i) a significant number of large Internet-related technology companies may be infringing on these patents, and (ii) AOL’s patent portfolio could produce in excess of $1 billion of licensing income if appropriately harvested and monetized. Unfortunately, several of these parties have expressed severe frustration that AOL has been entirely unresponsive to their proposals regarding ways to take advantage of this underutilized asset. The Company’s inaction is alarming given our understanding that many of the key patents have looming expiration dates over the next several years which could render them worthless if not immediately utilized. (emphasis added).