Barring any unforeseen setbacks, Wall Street is aflutter as Thursday marks the latest in social media IPOs – Twitter…and we all remember how well Facebook’s IPO went.
Pricing for IPOs involves an assessment of the company’s assets (including its intellectual property portfolio), liabilities, and current and potential revenue. As many of you savvy marketing folks know, Twitter makes its money primarily through paid advertising on the site (promoted tweets) and by licensing its users’ public data for analytics. Because much of users’ tweets relate to TV shows, Twitter is working on ways to correlate TV show Tweeters and TV ads shown during the show to further engage consumers – and charging big bucks for those as-yet-unproven opportunities.
Unlike many of its internet-era contemporaries (Apple, Google, Microsoft, Facebook, Yahoo!), Twitter has invested comparatively little in intellectual property assets. It has 24 active federal trademark applications and registrations; comparatively, Facebook has 92. And we have already discussed some of the genericide risks Twitter faces with its twittering tweeters. Their amended S-1 filing says little about the value of the Twitter brand and trademark assets, but certainly these filings are often skewed towards investment risks. Notably, Twitter’s filing does mention the genericide risk.
Despite being a leader among tech giants in the development of tools for consumer engagement through social media, Twitter owns 9 issued patents and among its contemporaries has a rather unorthodox view on patent rights. While much of the media has focused on the “patent war” trend, particularly in the wake of Samsung v. Apple, Twitter pledged in 2012 to only assert its patents defensively. They implemented a novel Innovator’s Patent Agreement (“IPA”) – agreeing to only use its patents for technology developed by its engineers as a shield, and otherwise having to request permission from the inventor in order to use the patent as a sword. It also makes the patent effectively undesirable to so-called patent trolls or “non-practicing entities” as it is intended to apply for the duration of the patent, so even Twitter’s successors or assigns would need the inventor’s permission to use the patent offensively (a solution that perhaps Congress should consider for America Invents Act 2.0). However, as one risky example it mentioned in its S-1 filing, should an inventor move to a competitor that infringes on Twitter’s patents, Twitter may not be able to assert patent infringement against the competitor and thus will be limited in their ability to obtain certain damages by having to resort to other claims, such as a trade secret or violation of contract provisions on the former employee.
While some may consider Twitter’s IPA to be a “patentally conscious”* hipster position akin to using a cloth grocery bag at the store, Twitter may now have to use its shield of patents. Much like Facebook’s scuffle with Yahoo! just before its own IPO, Twitter this week admitted to facing a similar challenge from a tech gorilla. As Wired reported on Monday, IBM has asserted that Twitter infringes some of its patents and seeks a negotiated settlement (read: royalty fees for a license). These patents include claimed inventions relating to a method of using of shortened URL links to retrieve webpages (U.S. Patent No. 6,957,224:); a method of displaying advertising to a user (U.S. Patent No. 7,072,849); and a method of generating a list of common contacts between users (U.S. Patent No. 7,099,862). Twitter’s own patent portfolio includes an invention relating to prioritizing tweets and other messages and refreshing a scrollable list of content items.
Despite this news, at last check, Twitter’s IPO share price increased from $17-$20 to $23-$25.
What do you think about (a) Twitter’s revenue potential and/or (b) Twitter’s views on its IP assets? Are you buying on Thursday?
*Yes, I made that phrase up.