Tough time for IP CEOs

Does the CEO of an intellectual property-driven firm have a shorter shelf life?

I blame it all on Mosaid. A few years ago, Mosaid was stuck in a funk. The company thought that they had some serious IP but they weren’t getting much value for it. Stock was stuck below $10. Then one day, the strategy changed (perhaps evolved), and the firm became much more aggressive, raised a bunch of capital, and put a lawyer in charge of getting some real bucks out of the suspected infringers.

And it worked. Licences were signed up, profits grew, and the shares responded (up 3x during the process).

Wi-LAN (WIN:TSX) tried it as well, launching a very aggressive attack on one of the world’s largets companies: Cisco. But it didn’t go smoothly. They did get a licence deal with Redline, for example, but the fees to be paid by Redline to Wi-LAN were de minimis. After a largely painless shareholder revolt, the company’s founders returned with control of the board, and naturally turned to a Mosaid exec to run the firm. And it has worked. Licences have been signed, profits are up, and the shares are up about 8 fold.

So, now it is Certicom (CIC:TSX) and Diversinet (DVNTF:OTC BB) that have made changes to their CEO suites, undoubtedly in the hopes that they can find similar success. Certicom did it on April 2nd, Diversinet followed on April 12th.

In some ways, I find it odd that the Board and the CEOs can’t seem to agree on a patent licencing strategy. That might be oversimplifying things, but there are thousands of IP company shareholders out there who are probably scratching their heads these days, asking “where’s the beef”?

In Mosaid and Wi-LAN’s case, they always believed they had a good corner on the patent market, and that the chickens would eventually come home to roost, along with the licence fees. And they’ve been proven to be right.

In Certicom’s case, there was never much doubt about the attraction of the patent portfolio, although the slow adoption of ECC technology made it hard to squeeze firms for licence fees. The stock doubled for a time during the past five years as certain key licences were signed (NSA for example), but has drifted of late.

As for Diversinet, the fact that they were able to remain solvent during the past half decade – waiting for the market to develop – is a great tribute to the pluck of the former CEO.

Unless you’re at the boardroom table yourself, you never really know what transpires. But these four firms make it pretty clear, it is definitely a tough time to be the Chief Executive Officer of an intellectual property-based firm.

Tomorrow I’ll discuss the challenges of financing IP firms.

MRM

(disclosure – as an investment banker, I led two public offerings for Certicom and two for Wi-LAN; 3 of the 4 have made investors money)