Is this a fancy patent pool?

An interesting new development in the patent wars — Tech Giants Join Together To Head Off Patent Suits – WSJ.com:

The new Allied Security Trust aims to buy patents that others might use to bring infringement claims against its members. Companies will pay roughly $250,000 to join the group and will each put about $5 million into escrow with the organization, to go toward future patent purchases, the people familiar with the initiative said.
Tech companies have tried various ways to protect themselves, including investing in Intellectual Ventures LLC, a patent-holding firm founded by former Microsoft Corp. executive Nathan Myhrvold. The companies provide money to help Mr. Myhrvold buy patents, and he in turn grants them a license to his portfolio. But some in the tech industry fear Mr. Myhrvold’s venture, which has collected thousands of patents in areas such as networking and software, may itself become an aggressive patent enforcer down the road. Mr. Myhrvold has said litigation isn’t part of IV’s strategy, but hasn’t ruled it out.
To head off such concerns, companies in the new group will sell the patents they acquire after they have granted themselves a nonexclusive license to the underlying technology. “It will never be an enforcement vehicle,” said the group’s chief executive, Brian Hinman, a former vice president of intellectual property and licensing at International Business Machines Corp. “It isn’t the intent of the companies to make money on the transactions.” He declined to confirm who the group’s member companies are.

This last bit is the interesting twist. The companies won’t own the patents but will sell them off to someone else. That someone else could very well be an investment trust type entity. Since the patents will have already been licensed, they will presumably have a royalty stream attached and therefore could be securitized. The trick here for the parent companies will be the pricing of the licensing royalties. Priced too low, then resale value is also low. The companies might have to sell the patents at a deep discount. Conceivably, the companies might have to either donate the patents or abandon them all together. They could also simply put them into the public domain.
Another issue will come up with the enforcement. Are the companies willing to enforce the patents against non-contributing companies? And what is the value of the patent resell if enforcement rights are somehow curtailed?
A patent pool with an investment twist. Very interesting.

The “Economy”?

Today’s Wall Street Journal is has a provocative op-ed by Zachary Karabell — There Is No ‘The Economy’. His point is that our conception of “the economy” is outdated – based on the nation-state:

In truth, what used to be “the economy” is just one part of a global chess board, and the data we have is incomplete, misleading, and simultaneously right and wrong. It is right given what it measures, and wrong given what most people conclude on the basis of it.
The world is composed of hundreds of economies that interact with one another in unpredictable and unexpected ways. We cling to the notion of one economy because it creates an illusion of shared experiences. As comforting as that illusion is, it will not restore a simplicity that no longer exists, and clinging to it will not lead to viable solutions for pressing problems.

Provocative, yes; correct, partly. Aggregate national statistics are what hit the evening news. But we also produce a torrent of disaggregated statistics on regional, local and sectors bases. The overall economic situation is carefully looked at from a regional perspective. For example, the well-known “Beige Book” of the Federal Reserve is a collection of regional outlooks. The reason why we use aggregate statistics is that the various micro-economies are tied together. And they are even more tied together than before. What happens in housing foreclosures in California affects stock markets in Hong Kong.
Rather than focus on the aggregate versus local story of what is wrong with our perception of “the economy,” I think it is more important to focus on the nature of the economy itself. We all agree that we are no longer in an industrial age. Yet, our measures and mindset continue to think that way.
So, yes, there is “the economy” – but, no, it is not what everyone normally thinks it is.

How to kill an industry?

From today’s New York Times, Citing Need for Assessments, U.S. Freezes Solar Energy Projects:

Faced with a surge in the number of proposed solar power plants, the federal government has placed a moratorium on new solar projects on public land until it studies their environmental impact, which is expected to take about two years.
The Bureau of Land Management says an extensive environmental study is needed to determine how large solar plants might affect millions of acres it oversees in six Western states — Arizona, California, Colorado, Nevada, New Mexico and Utah.<br
But the decision to freeze new solar proposals temporarily, reached late last month, has caused widespread concern in the alternative-energy industry, as fledgling solar companies must wait to see if they can realize their hopes of harnessing power from swaths of sun-baked public land, just as the demand for viable alternative energy is accelerating.

I’m all for having an effective environmental impact analysis. But this seems to be overkill. As I understand it, every project has to go through an individual EIS. I don’t quite understand the need for a moratorium while they assess their methodology. If the EIS’s are that suspect, are they going to also shut down the application for every new coal plant or oil rig as well? I doubt it.

Creating new intangible assets

Today, ICANN (Internet Corporation for Assigned Names and Numbers) created a whole new set of top level web domain address (see stories in Wall Street Journal , New York Times, AP). The high level domains are the suffix to the addresses, like .com and .org. Only 21 have been used — .edu, .gov, .mil, .info and certain countries, like .uk, .de . The new ruling by ICANN opens the gates to possible thousands of combinations.
In doing so, ICANN has also created thousands of new intangible assets. Each domain name is an asset — as wide spread as a trademark. But without all the protection of a trademark. So a number of companies and organizations will now need to grab as many domain names as possible — with an almost unlimited set to contend with. For example, who will get McDonalds.paris or Coke.berlin or Ford.car (or Ford.auto or Ford.brand? Here is ICANN’s answer to that question.

What’s to stop others registering my brand name?
Trademarks will not be automatically reserved. But there will be an objection-based mechanism for trademark owners where their arguments for protection will be considered.

An objection-based mechanism? Could get interesting.

Changing the role of the rating agencies

As expected, yesterday the SEC voted to change the requirements for certain investors to use credit ratings in their investment decisions. As SEC Chairman Christopher Cox explained in his Statement on Proposal to Increase Investor Protection by Reducing Reliance on Credit Ratings:

In preparing the staff recommendations to the Commission today, the Division of Trading and Markets, the Division of Corporation Finance, and the Division of Investment Management all have conducted thorough evaluations of the way credit ratings are used in the rules and forms within their areas of expertise. What those evaluations have found is that in some rules and forms, the reference to credit ratings isn’t really necessary at all. In those cases, the proposed new rules would simply eliminate the reference.
. . .
All told, the three Divisions have examined the references to credit ratings in 44 of our rules and forms. The staff is recommending changes to 38 of them. Specifically, they are recommending the complete elimination of any reference to credit ratings in 11 rules and forms. They are recommending the substitution of a standard based on a more clearly stated regulatory purpose or other concept in 27 rules and forms. And they are recommending leaving the reference unchanged in 6 rules and forms.

The major impact of the rule changes appears to be on money market funds – which would now be required to make their own determination of the default risk and liquidity of their holdings. However, another change involves structured finance vehicles – with implications for the monetization of intangibles. As Andrew J. Donohue, Director of the Division of Investment Management, explained to the Commission in his remarks:

With respect to Rule 3a-7 [under the Investment Company Act], as part of this rulemaking initiative, we have reevaluated the use of credit ratings as a factor for excluding structured finance vehicles from the Investment Company Act and are recommending that you amend the rule to limit the type of investors that may participate in offerings of the securities of those vehicles to accredited investors and qualified institutional buyers to make the rule consistent with marketing practices relating to those vehicles. We also recommend that you substitute for the references to credit ratings in the rule certain procedures that are designed to protect the full and timely payment of outstanding fixed income securities and to require that cash flows from a structured finance vehicle’s asset pool are deposited in a segregated account.

Structure finance vehicles are a standard mechanism for the securitization of intangibles (see our working paper – Intangible Asset Monetization: The Promise and the Reality). As the details of the proposed rules are made public, someone needs to take a close look at this to make sure that intangibles don’t get caught up in and damaged by the needed tightening of other financial engineering abuses.

Future of Good Jobs?

The W.E. Upjohn Institute for Employment Research has released a new study — A Future of Good Jobs? America’s Challenge in the Global Economy — focused on improving middle-class jobs and upgrading low-income workers. Based on a conference last year, the report is a set of papers containing specific policy recommendations. (The introductory chapter, which provides an overview and summary of the recommendations is available online.) The list of policy ideas include many of the old standbys we have talking about for years: tie education and training closer to workplace needs; provide universal health insurance; expand employment and training programs; strengthen the unions; increase the minimum wage; expand the Earned Income Tax Credit. It also includes some newer ideas such as wage insurance and tax incentives for companies that create “good jobs.”
There are two really new ideas. As the introductory chapter notes, in his chapter on employment and training Robert Lerman, almost as an aside apparently, “recommends changes in financial accounting rules so that firms count their workforces’ human capital as assets and thereby are encouraged to invest more in worker training.” As regular readers of this blog note, that is something I support — but it is something that is easier said than done.
The second new idea comes from Paul Osterman on encouraging job upgrading. Again, as the introductory chapter notes:

Osterman proposes that the U.S. Department of Labor establish a “Low Wage Challenge Fund” to assist employers in improving the skills of their workforce and thereby the quality of jobs. The Low Wage Challenge Fund would also provide matching funds to states for customized training programs oriented toward the low-skill workforce and would provide funding to community colleges to increase their involvement with employers and the low-skill workforce.

Getting companies to invest in their workforce, especially at the low end, is an ongoing problem. Both of these ideas might help.
Getting policymakers to understand that this is a public policy issue is another problem. As Kevin Hollenbeck points out in his new paper Is There a Role for Public Support of Incumbent Worker On-the-Job Training?, successful state programs already exist, but at a very low level of funding. In one state he studied intensively, “Primary sector jobs were created or retained at a public cost of less than $9,000 per job—a cost that rivals or bests most economic development initiatives.” Thus, “Public subsidy of incumbent worker training, especially in export-based firms, may be an effective economic development tool for states.” What is true on the state level is also true on the national level (although you may want to design the delivery system on the state level).
As we move more and more into the I-Cubed Economy, ongoing training and skill development will become more and more important. For all the talk about training, we need policymakers to start walking the walk.

High tech jobs

The AeA (formerly know as the American Electronics Association) has released a report on high tech jobs — Cybercities 2008:

* The leading metro areas by high-tech employment in 2006 were the New York Metro Area (316,500), Washington, DC (295,800), San Jose/Silicon Valley (225,300), Boston (191,700), and Dallas-Fort Worth (176,000).
* Seattle led the nation in net tech job creation in 2006, adding 7,800 jobs.
* The next largest net gains in tech employment between 2005 and 2006 occurred in the New York Metro Area and Washington, DC, adding 6,400 and 6,100 respectively.
* On a percentage basis, Riverside-San Bernardino saw the fastest job growth in 2006 at 12 percent.
* San Jose/Silicon Valley leads the nation in concentration of high-tech workers in 2006, with 286 high-tech workers per 1,000 private sector workers.
* Fifty-six cybercities had wage differentials higher than 50 percent and three cybercities – Austin, San Diego, and Sacramento – had differentials higher than 100 percent.

Of course, the New York Times technology blog had to gloat:

If you’re looking for a tech job in the United States, the best place to go is not Silicon Valley.
It’s New York.

The Wall Street Journal had a different take — High-Tech and Happening in Huntsville:

Huntsville actually ranks third in the nation for its “concentration” of tech workers, or the percentage of the private-sector workforce employed in high-tech. Nearly 19% of Huntsville workers toil in high tech, compared with nearly 29% in San Jose/Silicon Valley and 23% in Boulder, Colo.

Unfortunately, the full report costs $250 — beyond this blogger’s budget for such publications. But press releases with information on individual cities are available.

Is the company obsolete?

Stefan Stern raisies an interesting set of questions in his Financial Times column today – The nature of ownership:

Maybe business has changed for good, and companies are now barely even semi-permanent organisations, with their own ethos and identity.

He gets to this point through a discussion of the tensions between long-term managers and short-term investors (I suggest you read the entire essay). However, one could get to the same point through an analysis of modern management. It isn’t financial engineering that is pushing the company to a more networked, and in some cases virtual, organizational structure. It is the nature of the economic enterprise. Open innovation, alliances, extended supplier/customer networks — all are changing the nature of the corporation. And as the company changes, the nature of the ownership relationship is likely to change as well.
But, rest assured, the short-term financial engineers will find a way to speculate on companies, no matter what the organizational structure. Limiting the damage from that situation is Stern’s central concern – and should be ours as well.

Intangible Assets: Measuring and Enhancing Their Contribution to Corporate Value and Economic Growth

Intangible Assets: Measuring and Enhancing Their Contribution to Corporate Value and Economic Growth
June 23, 2008
A National Academies’ Conference
in conjunction with Athena Alliance

Investment in intangibles, according to a 2006 Federal Reserve Board staff analysis, exceeds all investment in tangible property and, if properly accounted for, would raise US productivity growth by 20 percent for the period 1973-1995. These assets — computer software, R&D, intellectual property, workforce training, brand equity and organizational capabilities — now account for three quarters of economic activity. Increasingly, they are a principal driver of the competitiveness of US-based firms, economic growth, and opportunities for American workers. Some intangibles, like intellectual property, are being securitized, auctioned, and traded; a few years ago no one contemplated the existence, let alone the extent, of such “technology markets.” Yet despite these developments many intangible assets are not reported and are treated in the national economic accounts as expenses rather than investments. And there is no coordinated national strategy for promoting intangible investments apart, perhaps, from R&D.

This one day conference, hosted by the National Academies’ Board on Science, Technology and Economic Policy (STEP), in cooperation with the Committee on National Statistic and sponsored by the Commerce Department’s Bureau of Economic Analysis in response to a congressional directive, includes discussions of what are intangibles and how they work, how intangible investments compare and contribute to growth, how intangibles are created and used by firms, and what the government’s role should be in supporting markets and promoting investment in intangibles.

For an agenda, click here. Presentations are available online at the STEP website. The presentation by Dr. Jarboe of Athena Alliance: US Policies for Fostering Intangibles, outlines the size of the federal government’s investments in intangible assets and outlines a number of policy steps that can be taken to foster the creation and utilization of intangible assets in the US economy.

Older workers – a key intangible asset

Steve Lohr’s column in today’s (Sunday) New York Times (Ideas and Trends – For a Good Retirement, Find Work. Good Luck.) is a good overview of a key subject — what to do about the aging workforce. For two reasons, the answer may be “work longer.” First, many workers may not have the funds with which to retire comfortably (or even uncomfortably). Health care cost being the biggest anxiety. The second reason is that those older workers constitute a key asset. Their skills and tacit knowledge represent a large investment. But, as Lohr points out, many employers are reluctant to higher older workers. And some public policies, such as early retirement incentives — including an earlier but reduced Social Security payment — work against retaining older workers.
That is not to say that some companies don’t value their older workers. Take this example from Lohr’s article:

Judy McCrickard, a 64-year-old administrative assistant in Racine, Wis., plans to retire at the end of 2010, when she will be 66. She works for S. C. Johnson, a household products company that the AARP rates as one of the best employers for workers over 50.
But Ms. McCrickard has also kept up her end of the implicit bargain, by regularly upgrading her skills. When she joined the company in the 1960s, there were no computers in offices. But through courses offered by the company, she has become fluent in budgeting, financial planning and project management programs. Today, she is essentially a project manager, not a secretary. Her latest project was to design and manage an internal Web site for contingency planning across the global company to prepare for emergencies like a pandemic.

The key, as much as anything, is attitude. Learning new skill, keeping up with the changes; all of this indicates a desire to continue. On there other hand, there are those who are simply putting in time until they can get that pension.
This is an example of a major attribute of the future workforce: diversity on all levels. For older workers, some will kick-back early and some will keep going forever.
In either case, it will be be important for the I-Cubed Economy to tap into and capture that intangible knowledge floating around in the heads of those older workers — both retired and actively working. Thus, retirement may not be complete retirement. For some, it will be an opportunity to move to a role of mentor and “senior statesman.” Along with the policies Lohr talks about, we also need a set of policies (public and corporate) to encourage this new (but actually traditional and ancient) role.