Patent bubbles

Summary: Reader with advanced qualifications in the said field remarks on a cartel-like structure of cross-licensing deals among mega corporations

An interesting set of facts is coming out of the Microsoft versus Motorola trial. Details here. Particularly interesting is the analysis further down on the page:

I have always considered these cross licensing deals to be something of a circular investment program.

All of these companies have vast patent portfolios, some are worth more than others, but this is a situation where A pays B who pays C who pays D who pays A and variations.

In investment funds that kind of dealing/trading is specifically banned because it is (and has been) used to artificially inflate the value of the fund portfolio. It looks great till someone tries to liquidate their investment, get the money, at which point the downward spiral starts and accelerates very rapidly and another bubble bursts/market crashes.

So that's one thing, at the other end, we all know just how rubbish most of these patents are and what value we would place on them, zero in most cases; but how much money do these companies book to these cross licensing deals for these worthless patents and then just how much corporate tax is lost due to these companies moving money away from the profit line with this trick.

So you lose because your government doesn't get it's due, and you lose again because these guys are basically running a cartel that artificially inflates their costs so you are charged more for your goods.

Starbucks recently got caught in the UK avoiding billions in tax, by 'licensing' it's own logo from itself for pretty much all of it's profit.

Indeed avoidance is not wrong, as they said, they followed the rules, but it is just as stinky as politicians writing their own expenses claim rules and then claiming that they were only following the rules as they repeatedly dipped their hands into the till.

Is it possible that Googles "do no evil" policy prevents them from joining in the game and may result in the cat getting out of the bag?

I didn't write that analysis, but looking at it, I am sure the author is fundamentally correct. It would explain many anomalies in the IT sector.

For example, something was obviously wrong when the Dick Smith electronics chain,including inventory and real estate was sold for only A$ 20 million, i.e. valued the same as a large house in Sydney.

That tells me that Apple, Microsoft, Sony, Panasonic, and to a lesser extent Intel and AMD products were simply not selling. So for them to keep booking ever increasing amounts of 'income' and 'earnings' they had to be doing something shonky - I'm pretty sure this is it.

Another thing that leads me to that conclusion is that during the 'tech boom' the Australian tax office changed the accounting rules with respect to IP to 'bring them into line with international standards'. Before they changed the rules, IP expenses (outgoings, i.e. real cash expenses) were considered costs (liabilities) on a company's balance sheet and tax forms. After the changes, those expenses were to be shown as 'assets', which is clearly the opposite of business realities!

"That tells me that Apple, Microsoft, Sony, Panasonic, and to a lesser extent Intel and AMD products were simply not selling."One effect of this was that small to medium enterprises immediately cut back or eliminated licensing and patent applications - or even patent renewals (which are expensive). I suspected at the time this was to give further advantage to large foreign multinationals. Now I realize it gives a certain set of them an (ultimately infinite) advantage for accounting purposes (selling of stock and borrowing).

Think about it, the 'money' (book keeping entries) they have coming in from IP licensing is shown as earnings, but the 'money' they have going out in IP royalties is shown as an increase in assets! The book value of every company involved in this round-robin scheme increases toward infinity even in the complete absence of any actual sales! Nice work, if you can get it!

I think this scheme needs to get as much news coverage as possible, don't you? ⬆