This post is not about protecting intellectual property; it is about business intelligence. I probably would not be writing this post but for an article in IEEE Spectrum (Feb 2021): The Careful Engineering of Facebook’s Filter Bubble. It provides a great example of how you can use a company’s patent portfolio to develop a surprisingly detailed understanding of what the company’s leadership was thinking as they built and ran the company. And my message is that this kind of analysis can be a powerful business intelligence tool.
In the Spectrum article, the authors tell a story of Facebook’s intentions via a series of patents that Facebook filed over a nearly 20-year period. From personal experience, I know that companies only take the time (and spend the money) to protect intellectual property (i.e., file patents) that they feel is essential to their success, i.e., would support a sustainable competitive advantage.
At Textura, we applied for patents to protect the key elements of our business model and prevent others from copying our innovations. The patents revolved around construction payment management and focused on industry specific processes related to payment processing. In retrospect, anyone who was interested could have easily understood many elements of our business plan and what we thought was essential to its success by reviewing our patents.
Using an analysis of selected patents, the authors of the Spectrum article make a compelling case that important elements of Facebook’s business model relate to the news feed, how that the product was designed to aggregate content and most importantly how to feed users data based on their interactions on the Internet. The story is all the more convincing because it walks us through the timeline constructed by the series of related (in terms of building Facebook’s core features/strengths) patents over a nearly 20-year period.
The article clearly makes a case. But that is not the most important story here. In fact, the headline was so thoroughly buried that it was not even mentioned. The real story here is that you can learn a lot about a company (and cross reference it with what they state publicly) by reading their patent portfolio.
Conversely, you could test a company’s sophistication/competence by understanding if they invested the time to protect the intellectual property that provides the foundation for their business model.
Assuming the analyst has a good understanding of the business environment, a patent review of a company can also help to understand what other opportunities, not covered by the patents, might remain nascent and ripe to be exploited.
Finally, there is information in the ability or lack thereof to be able to patent key facets of the processes that deliver on a company’s business model.
As I noted in my opening, this is obvious stuff. Anyone who has done due diligence on an acquisition knows that patents are the most direct route to understanding the power of a company’s intellectual property. And that is why sophisticated investors use these techniques. But it was not so obvious to me prior to reading the Spectrum article and realizing the power of a timeline laying out the patents and making the thought processes of the principals completely transparent.
As such, Spectrum article’s analysis is an excellent jumping off point for investigation and discussion around how the business got to where it is and provides hints as to where it could go. And, as I stated at the beginning of this post, a company’s patent portfolio can be an excellent tool in an investor’s business intelligence kit.
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