Efrat Kasznik

Much has been written on women’s disproportionate numbers as scientists trained in science, technology, engineering and mathematics (STEM), as well the under-representation of women as inventors of record on USPTO patents. These statistics relate to women’s role in scientific development and inventorship, or in other words: in the creation of intellectual property (IP). Having said that, the reasons why women don’t get funded have little to do with IP, and much to do with the institutional structure of the venture capital (VC) ecosystem, as well as the corporate representation (or lack thereof) of women in senior management and board positions.

In an article we published on this blog in November 2015, we documented the findings of a study of Unicorns (startups with valuations of over $1 billion) and their patent holdings. In that study, we discovered that over 60% of Unicorns held immaterial patent portfolios (10 assets or less). We have subsequently concluded that these Unicorns are likely to fill the gap in their patent holdings through organic filing and patent acquisitions, as they approach an exit event or as they enter a major new market. Fast forward to October 2019, and WeWork, a member of our Unicorn “Class of 2015”, has been in the news under very unpleasant circumstances. The WeWork planned IPO was called off in October 2019, after questions emerged related to, among other things, the viability of the company’s business model following financial and operating disclosures included in its S-1 filing with the SEC. This led to a series of events where, eventually, SoftBank acquired a controlling interest in the company at a valuation of $8 billion, a fraction of its most recent valuation of $47 billion, while in the process removing Adam Neumann, the company’s co-founder and CEO, and buying out his shares.

These IP deals were not necessarily selected for their size, but for their indicative nature of a set of circumstances that exist in current markets that made these deals not only possible, but essential… The three trends highlighted by these patent deals: acquisitions by foreign buyers, Unicorns and other well-funded startups looking for assets, and various strategies to avoid the burden imposed by the PTAB, are likely to continue well into 2018. None of these deals would have been entered into if the parties involved did not deem U.S. patents valuable and critical for their relative business, and that is one positive message that all of us involved in the IP marketplace can take with us into the new year.

Topping the list of US Unicorns (a pre-exit startup with a valuation exceeding $1 billion) are high flyers like Uber at $51 billion and Airbnb at $25.5 billion, followed by companies that are mostly concentrated in three industries: Consumer Internet, E-commerce and Software. Overall, we found out that 30% of US Unicorns have no US patent assets at all! About 62% of US Unicorns have only 10 or less (issued and pending) US patents in their name; these companies account for more than $157 billion in collective valuation and $25 billion in combined funding.

While impairment analysis exists for reported intangible, there is no process whatsoever for writing off non-reported intangibles, which include all internally created patents as previously discussed. Since these assets are not on the balance sheet, there is nothing to write off in the first place and no basis against which to conduct an impairment test. From a pure accounting perspective – there is no place to record the loss, and no way to calculate the size of the loss. This does not mean that the markets will not factor that into the stock price, even without specific disclosure by the company. It may very well be that if companies start writing off acquired intangibles, stock analysts and investors could estimate the degree at which a similar write-off could be applied to non-reported patents, and adjust stock price expectations accordingly.