As I have described in this column, my investment lens is comprised of several thematic perspectives and we have touched on a few here and there over the past several months. One of the newer trends that I am keeping my eye on is the growing importance of intellectual property (IP) not only as an industry matures but also as it pertains to a company's assets and competitive position. In my view there is no area that showcases the growing importance of IP more than the mobile phone industry, or as I look at it from a thematic perspective "powering the mobile consumer."
As our economy has shifted over the past decades from a manufacturing based one to one characterized by consumerism and services, corporate assets have increasingly come in the form of non-fixed assets such as technology, know-how and brands. It is upon these assets that companies base their businesses and as such IP and intellectual property rights (IPR) have become an increasingly important way to safeguard their business. In general there are two types of IP strategies - a passive one in which a company use its IP to protect itself from competitors and an active one in which a company will use its IP to generate additional revenue and profit by selling or licensing out its intellectual property rights.
As I mentioned, the mobile phone industry, or as I suspect it will be soon be renamed the mobile device industry, is a quagmire when it comes to IP. Considering how these devices have incorporated a long list of technologies and functionalities over the past few years - personal information manager, FM radio, camera, video, music, GPS, Wi-Fi, gaming and more - while the underlying cellular technology continues to evolve, it comes as little surprise the industry is a hot bed of IPR activity.
While there are several lawsuits that we can point to, such as Apple Inc. vs. Nokia, Nokia vs. InterDigital Inc., Motorola vs. Research in Motion, one of the more interesting ones that underscores the evolving nature and landscape of the mobile device industry is Eastman Kodak vs. Apple and Research in Motion (RIM).
I say this because Kodak has adopted an active IP strategy and while cameras are nearly ubiquitous in mobile phones, we have to remember that the companies behind the bailiwick of camera and imaging technology are not from the mobile phone industry. Kodak has licensed digital imaging technology to approximately 30 companies including LG, Motorola, Nokia and Sony Ericsson, all of which are royalty bearing to Kodak.
Earlier this year, Kodak filed lawsuits against Apple and RIM alleging the infringement of Kodak digital imaging technology. In the complaint filed with the U.S. International Trade Commission (ITC), Kodak specifically claims that Apple's iPhones and RIM's camera-enabled BlackBerry infringe on a Kodak patent that covers technology related to a method for previewing images. Per the complaint, Kodak is seeking from the ITC a limited exclusion order preventing the importation of infringing devices, including certain mobile telephones and wireless communication devices featuring digital cameras.
Now let's consider what that means. If the ITC returns a favorable ruling for Kodak it could mean that Apple and RIM may have to stop the sale of the infringing devices in the U.S. until a compromise is found. Is it likely? Hard to say but Kodak and others have used similar tactics to bring those who infringe on their IP to the negotiating table in the past and are likely to do so again.
That is but one example and the mobile device ecosystem is a vast and growing environment.
So how can we play this trend?
For me, two well-positioned companies that have ample IP in this arena and are well capitalized from a balance sheet perspective are Qualcomm Inc. and InterDigital. Moreover, both of those companies are in the pole position to capitalize on the growing number of devices, such as Kindle, the Nook and the soon to be released Apple iPad, that are not mobile phones but are incorporating cellular and other connective technologies.
There are other plays as well including Dolby Laboratories. I think sound quality will become increasingly important, as these devices become more multimedia devices for not only music and short clips but also movies, TV and gaming. Consider that it has just announced that it will bring its 5.1 audio to LG phones and more recently shared that its Dolby Axon surround sound voice technology will be available for PlayStation 3 and Xbox 360 consoles as well as Mac computers.
There likely will be other ecosystem plays as mobile expands and consumes more IP. There also are IP plays to be had in other industries as well. As always, keep your eyes and ears open, and always do your investing homework.
• Chris Versace is director of research at Think 20/20 LLC, an independent research and corporate access firm based in Reston, Va. He can be reached at firstname.lastname@example.org. At the time of publication, Mr. Versace had no positions in companies mentioned. However, positions can change.