The Intangible Value of a Tech Startup
In one of the biggest technology IPO’s
on the New York Stock Exchange, a tech startup has surprised investors and
commentators alike, with a surge in stock prices on the opening day of trading.
I first encountered SNAPCHAT in
2012 during an exchange programme in the Netherlands. Students from the US were
all sending “Snaps” to each other, trying to convince their Dutch, South African
and Australians counterparts to join in. At that stage, the general consensus
was the following (and still remains for many): What is the point of sending
videos or images that cannot be stored on your mobile device?
Based on yesterday’s results, the
company’s market value appears to be around $28.1 billion.
What sits behind the so-called value of SNAPCHAT and is it merely an
empty vessel for a digital generation?
The initial interest behind the
platform was the fact that Snaps were only accessible for 10 seconds. This has
changed in recent times, with a screenshot making it possible to store the Snap
on a device. The sender does however receive a notification when the recipient
does take a screenshot of a Snap. There are also Apps that have sprung up with
the capability to store photos and videos.
The main features of SNAPCHAT are
the unique elements of the Snaps, the inclusion of Geofilters (graphic layovers
that users can insert when in a specification geographical area), Lenses
(augmented reality for selfies), Stories and Discovery.
Intellectual Property
From an intellectual property
perspective, the intangible assets of a company are often made up of patents,
designs, trade marks, copyright and frequently, while not emphasised enough,
confidential information, know-how and trade secrets.
The company has indicated that
approximately 158 million people use the App daily, sending 2.5 billion Snaps
on the platform. The average user spends in the region of 30 minutes a day on
the platform. It therefore appears that a substantial portion of the
intellectual property correlates to the data and information of millennials,
entrenched within this platform, a segment of the market that so many companies
have struggled to connect with. However, the biggest challenge for SNAPCHAT has
been monetizing these aspects, as the company remains unprofitable.
Furthermore, privacy and data concerns have been raised, as it remains ever
difficult to manage consumer information responsibly and with the appropriate
protection tools.
The SNAPCHAT trade mark, which
has been registered in South Africa, is also an important part of the company’s
intellectual property. In addition to registered trade mark rights, SNAPCHAT
has acquired a substantial goodwill and reputation in the market place. This
places the company in a strong position to enforce its rights against any
trader that may wish to use the same or similar trade mark in the social media
industry.
The company has started to
bolster its patent portfolio, with recent acquisitions from Yahoo and other
technology entities, which has made the company more attractive for investors.
Risks and pending litigation
SNAPCHAT filed a US patent application
during 2012 for the so-called “tap and hold” function on the shutter to record
a video or photograph (see
https://www.google.com/patents/US8428453).
However, a company called Mojo Media
filed a similar “tap and hold” patent application shortly thereafter. SNAPCHAT’s
patent application was granted by the US Patent and Trade Marks Office in 2013,
but it seems that action was instituted by Mojo Media.
There is also ongoing litigation
between Snap Inc. and a Canadian entity, Investel Capital Corporation, who is
seeking to invalidate the patent SNAPCHAT
obtained in respect of its Geofilters technology. The other side argues that its
technology was made available to the public before SNAPCHAT’s patent
application was filed.
Furthermore, there is also the
settlement that was reached (in quite similar fashion to the Winklevoss
brothers’ dispute with Facebook), with an early SNAPCHAT employee, who
apparently jointly owned some of the intellectual property. This intellectual property in question includes
ghost-shaped logo
("Ghostface Chillah", named
after Ghostface Killah of the hip-hop group Wu-Tang Clan), the PICABOO
trade mark (which was subsequently rebranded to SNAPCHAT) and possibly the “evaporating
photographs” concept.
Is the tech bubble
waiting to burst?
Some are of the view that the recent tech
investments may be a repeat of the dotcom crash in the 2000’s. However, we live
in strange times, with the NYSE reaching record levels and the London financial
markets remaining surprisingly stable in times of protectionist movements,
amidst fears by investors and consumers.
Consumer data and confidential information
(specifically pertaining to millennials), appear to be increasingly valuable
forms of intellectual property, and may be inflating the valuations of tech
startups. However, the market appears hungry and ready to throw money at it. Together
with an increasing patent portfolio, investors seem hypnotized by the potential
value thereof.
Can the data and technology of
modern-day tech companies translate into strong financial returns? Only time
will tell.
Reinhardt Biermann
In another ongoing dispute, Vaporstream Inc. v.
Snap Inc. (case number 2:17-cv-00220),
Vaporstream has instituted patent infringement claims against SNAPCHAT in
relation to a system for sending and receiving private electronic messages.
SNAPCHAT has argued that the type of invention relied on is not eligible for
patent protection, in
terms of the case of Alice v CLS Bank
International (a 2014 US Supreme Court decision). SNAPCHAT has asserted
that the subject matter of the invention is not patentable, as it relates to
attempting to keep secret the identity of a sender and recipient of a message,
on a computer.
If anyone has an something to contribute to the conversation on IP, please let Afro-Buff know
here.
Afro
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