M·CAM Model Identified by U.S. FASB in Reporting Guidance

Date:  Sun, 2001-04-01

April 1, 2001 [Excerpt] Full Report

Amazon’s Grasp on One-Click Patent May be Slipping

Date:  Wed, 2001-03-14

Game, asset and match

Date:  Tue, 2001-01-02

M·CAM and the School of Engineering

Date:  Mon, 2001-01-01

University of Virginia School of Engineering January, 2001 The availability of competitively priced debt and equity financing for small start-up technology businesses continues to constrain the growth of technology nationwide. Historically, the most formidable obstacles that confront a start-up company are a lack of access to capital and a limited cash flow. Commercial lenders, often avoid the start-up technology market entirely, or at a minimum demand an accelerated repayment schedule that, given the financial constraints and management difficulties associated with new businesses, typically result in under-capitalization and a high risk of failure. Mosaic Collateral Asset Management Inc. (M·CAM) is a new corporation formed with the goal of providing lending institutions access to a markets that, to date, have been inaccessible to traditional lenders and investors. M·CAM offers banks and investors a guaranteed purchase price for intellectual property owned by a loan applicant. This effectively allows the bank to treat intellectual property as collateral. The range of assets considered by M·CAM includes patents and associated licenses; marketing and distribution rights; trademarks and copyrights; trade secrets and marketing plans; and hardware, equipment and other unique assets. Research being conducted by systems engineering professor Peter Beling and his colleagues with M·CAM focuses on improving the accuracy and objectivity of the valuation process. The central task in this work is the development of mathematical models to predict the likely value of intellectual property, relative to comparable assets for which market valuations are known. The automated prediction capabilities of the models allow M·CAM to limit the scope and number of judgments required of evaluation officers, resulting in a faster and more objective evaluation process. The initial phases of this work were conducted under a $30,000 Innovation Award from Virginia’s Center for Innovative Technology (CIT) and M·CAM’s parent company, Mosaic Technologies. CIT recently honored this project as “Best University Research and Development Project” in a statewide competition. We are continuing this work under a $600,000, three-year award from M·CAM. The focus of this award is the development of methodology for long-term updating and improvement of M·CAM’s models.

M·CAM, Swiss Firm Join to Insure Intellectual Assets

Date:  Fri, 2000-09-08

By: Reed Williams The Daily Progress September 8, 2000 M·CAM Inc. said Thursday a new partnership provides the financial backing and cachet it needs to convince banks it can turn companies’ intellectual property into hard assets to be used as loan collateral. David Martin, M·CAM’s founder and chief executive officer, said the Charlottesville firm has teamed up with Swiss Re New Markets, a division of Swiss Reinsurance Co., to value and insure companies’ intangible assets. “It is going to provide a new form of far-less-expensive capital than has been available to rapidly growing and well-established companies,” he said. “They just don’t have [conventional] collateral.” M·CAM will use its largely automated asset valuation model to put a price on these assets, Martin said. Companies will go to the bank and apply to have their intellectual properties, like patents or copyrights, analyzed by M·CAM in hopes that the bank can lend against them. If a company goes bankrupt and can’t repay a loan, M·CAM and Swiss Re New Markets cover the expense and seize those assets, perhaps reselling them or otherwise capitalizing on their worth. This way, at least in theory, the bank would recoup its investment. “We have carefully considered all angles of this highly complex risk and have created a coverage facility that will help enable M·CAM’s [intellectual property] asset collateralization to become commerical reality,” William Hoffman, associate director of Swiss Re New Markets stated in a news release. Robert A. Moorefield, area president of SunTrust Banks Inc., expressed interest Thursday in using M·CAM’s model. “Our bank has looked at the concept for underwriting intellectual property,” he said. “We like it, and we think it has merit. We think that at a point in time in the future we can make the concept work.” For the past several months, M·CAM has been working to establish credibility for its nascent concept in the eyes of banks. M·CAM announced in February that Marsh USA Inc., a risk-management firm, backed its model. Marsh USA is a subsidiary of New York-based Marsh & McLennan Cos., a Fortune 500 insurance company. In June, M·CAM announced San Diego-based Science Applications International Corp., which sells information-gathering and systems-integration technology, would consult M·CAM in intellectual property matters. “It’s a good time to be a private company,” Martin said. “We have been willing to move more efficiently to partner with big companies at a time when some [public] companies are responding to market frustrations out there.”

Insurers Try to Keep Up with the New Economy Through Novel Products

Date:  Thu, 2000-09-07

By: Pamela Sebastian Ridge The Wall Street Journal, Page A1 September 7, 2000 Swiss Re New Markets, a part of Swiss Reinsurance Co., Zurich, teams up with M·CAM, Inc., Charlottesville, Va., a firm that analyzes the value of intellectual property, on a niche insurance product for banks and other lenders. They hope to encourage banks to consider intangible assets, such as intellectual property, as collateral for loans. M·CAM appraises a firm’s intellectual property and together with Swiss Re insures that amount. In the event of a loan default, the bank would get the insurance payout. Separately, insurance broker Marsh, a unit of Marsh & McLennan Cos., New York, develops a performance bond to protect people doing business on the Web. The product is similar to a bond carried by a contractor to guarantee work is done. The idea, says Marsh, is to bring a higher level of comfort to people who do business on the Web but never actually meet. As electronic businesses mature, look for more niche products, says the Insurance Information Institute, New York.

M·CAM and University of Virginia Share Virginia Center for Innovative Technology Innovation Award

Date:  Fri, 2000-09-01

Two Startup Companies are Defying the Odds

Date:  Mon, 2000-07-03

By: Lorri Montgomery Inside Business July 3, 2000 Over and over, we hear the discouraging statistics of the success rate of small businesses — less than half make it to their first anniversary. Because I personally can’t do much about the failure rate of new businesses, the least I can do in this space is bring you some good news about a couple of rather young businesses that are defying the odds, M·CAM and Nascent Technologies. M·CAM is a Charlottesville-based company that has grown beyond its founder’ initial optimistic projections and has taken some unpredicted turns. In the past several months, M·CAM has started attracting the attention of national movers and shakers. On the public-relations front, an article written by the company’s CEO David Martin was featured in the June issue of the online publication Entreworld (www.entreworld.com). In addition, David Paulson, M·CAM’s vice president of risk management, is featured in this month’s issue of Risk Magazine. But one of the company’s biggest breaks came last month. Martin, who was featured in an INSIDE BUSINESS article last June, met with members of the congressional Committee on Banking, Housing and Urban Affairs to talk about what they do. “We believe it’s quite an honor to be asked to participate in these discussions,” said David Winer, M·CAM’s chief operating officer. “They wanted to hear how our system works.” That’s because M·CAM’s concept is revolutionary, its timing serendipitous. It’s writing the blue book on technology. M·CAM has devised software that calculates value for intellectual property, such as patents, copyrights, and trademarks, and continues to recalculate that figure through the property’s lifetime. The software, primarily developed for banks, helps bankers put price tags on a business’ intangible assets, which can then be used as collateral for loans. The Federal Accounting Standards Board also is looking to M·CAM for advice, Winer said, as are members of professions that M·CAM had not expected to hear from. “The banking side is moving on track, but some other things have accelerated beyond what we initially imagined,” Winer said. Attorneys and accountants have approached the company expressing interest in certain aspects of M·CAM’s software capabilities. “They have looked and said they could really benefit from maybe one piece of the software,” Winer said. At the moment, M·CAM is working with 10 banks, compared to one last June. The banks are in-state and out-of-state. “We are talking to some very large national banks, but most of this we can’t disclose just yet,” Winer said. The demand for services has resulted in tremendous growth within the company. M·CAM’s workforce more than quadrupled in the past six months, growing from four employees in December 1999 to 18 today. “What the world is telling us is that the need [for M·CAM’s accounting methods] is greater than we expected,” he said. Another startup, Nascent Technology Solutions, is also on the move. Much has changed since INSIDE BUSINESS wrote a story in February 1999 about the small company that invents solutions for highly technical problems that other companies can’t solve. In the words of Nascent founders, Chris Domack, Ron Todhunter and John Companion, they do it by “building electromechanical and precision prototype devices that no one else builds.” One of their specialties is inventing miniature working versions of much larger high-tech equipment. For example, Nascent developed a welding-inspection device that reveals cracks or problems in space-station parts. The current X-ray technology calls for bulky equipment that is barely portable and requires body shields because of radiation. Nascent’s device is about the size of a cigarette pack and is entirely nonhazardous. In the past year, Nascent has landed several prestigious contracts, locally and nationally. One of its largest includes several projects for Boeing. Closer to home, Nascent helpded build a 35-foot-long wind tunnel for the Denbigh Aviation Academy, which can be used by people around the country via the Internet. As a result of these and other projects, the company’s staff has increased by two employees, but one of the partners, Companion, left Nascent to branch out on his own. In January, Nascent moved from its humble beginnings, a small office near Newport News/Williamsburg Airport, and into much larger and more comfortable surroundings in the Hampton Roads Technology Incubator. “We are doing really well and working on some exciting projects,” Todhunter said. “Unfortunately, the most interesting and unusual project is one we can’t talk about yet.”

Forum on Taxing E-commerce Sales Ignites Debate

Date:  Sat, 2000-07-01

Chamber Comments July-August, 2000 Charlottesville City Council Chambers was the scene of a spirited panel discussion on “Internet Taxation.” Chamber Chairman Bob Moorefield served as moderator. The panelists were Delegate Paul Harris, member of the national Advisory Commission on Electronic Commerce; representing the technology sector, David Martin, President of M·CAM and the Chamber’s Technology Roundtable Chairman; representing the public sector finance and County of Albemarle, Melvin Breeden, Director of Finance for the County of Albemarle; representing the regional retail sector, Ron Martin, President of Ron Martin Appliance and the Chamber’s Retail Roundtable Chairman. Delegate Harris agreed with the majority of his committee’s opinion that the moratorium against Internet taxation should continue. This, he said, would help ensure the continued growth of the new high-tech economy and give small, Internet based companies a chance to develop and compete. All panelists agreed they were against “taxing the Internet.” Ron Martin stated, however, that is was intellectually dishonest to include the required collection of already existing taxes (such as sales and use taxes) when discussing whether or not to “tax” the Internet. Brick and mortar merchants are already required to collect sales tax and pass it on to the State, thus increasing the cost for a consumer to do business with them. Such merchants wish a level playing field. Martin pointed out that it is simply not fair to require retailers to collect state taxes when selling a certain product while at the same time freeing an Internet retailer from the requirement of either collecting the sales tax or furnishing information which would allow the state to collect the tax on that same product. Melvin Breeden indicated the state and local jurisdictions would increasingly lose revenue if Internet sales are to grow as projected. Inevitably, this revenue would need to be replaced or services cut. From the technology sector, David Martin agreed with the point that the requirement that brick and mortar merchants collect taxes which Internet merchants are exempted from is unfair. He expressed deep dissatisfaction with the existent complexity and lack of fairness in the current system of business and retail taxation. Martin pointed out that the very fact that the cost of doing business can change drastically from state to state and even from locality to locality in dependence upon tax codes is an example of the inherent unfairness in the traditional tax system. His desire is to see companies making use of new technologies, like the Internet, and doing business in those new technology environments, no be subjected to the current “antiquated” tax system. “We need a new model,” says Martin, for a business environment that no longer recognizes borders.

How Do You Shrink 19 Hours into 2.5 Seconds?

Date:  Tue, 2000-06-27

On Thursday, July 27, 2000, The United States Patent and Trademark Office (USPTO) held a roundtable meeting in Arlington, VA to discuss and identify ways of improving their internal examination of computer-related business method patents. USPTO officials disclosed that their examiners take an average of only 19 hours to review prior art per patent application, with a maximum review time of no more than 31 hours. The annual cost to the USPTO of doubling this review time was estimated to be $270 million dollars. Due to severe limitations in their spending authority, the USPTO cannot currently afford this option. Given the lack of time and resources, USPTO examiners are often unable to perform a truly complete search of prior art. At the roundtable meeting, USPTO officials asked for ideas from third parties on how to improve their technology and access to prior art. We have an idea. M·CAM, the global leader in intellectual property monetization, has developed a revolutionary process and technology implementation to perform a complete prior art search on patents in less than 10 minutes. Sometimes as fast as 2.5 seconds. No joke. This technology can be of tremendous value to the USPTO, and many others. Please contact us

David Martin’s statement at U.S. Senate’s Roundtable Meeting and Discussing of “Accounting for Goodwill”

Date:  Wed, 2000-06-14

Statement of David Martin CEO of M·CAM, Inc. 10:00 a.m., Wednesday, June 14, 2000 Mr. Chairman, distinguished committee members, fellow panelists and guests, I would like to thank you for your invitation to discuss with you the increasingly important issues surrounding the use of intangible assets in domestic and international finance and business. My name is David Martin and I am the founder and chief executive officer of M·CAM Inc. M·CAM is the first company which built heuristics to reproducibly and auditably determine secondary market monetized value for intellectual property and intangible assets. Two miles from our offices in downtown Charlottesville, Virginia one of this country’s greatest statesman defined a fundamental doctrine which conveyed to each American the right to the ownership of thought and ingenuity. When, in 1790, Thomas Jefferson lobbied Congress to refine the Crown’s historical practice of conveying statutory limited monopolies for the protection of innovation, he and his visionary colleagues realized that empires of the future would be built on intellectual property, not simply on the annexation of the globe. However, for the past 210 years, this right has languished in the ether — relegated to the conveniently flat-earth term — intangible. In the midst of an unprecedented economic renaissance this Committee and many of its distinguished affiliates have begun to tackle one of the single greatest economic challenges facing today’s economy. From whence does value come and how can it be represented? We’ve been inundated with “pool-of-interest” talk on the one hand and “one-click-shopping” clichi on the other. The FASB together with countless industry, academic and professional interests have identified an accountability deficiency in current accounting practices which allows, through the use of strategic reporting methods, incorrect representation of business combinations — both on the part of the acquiring and the acquired. An effort to bring discipline into chaos is a laudable effort. However, to lay antiquated methodology over a knowledge-based economy is inappropriate. To tax, through the amortization of the ill-conceived term “goodwill”, those entities conducting business in the high technology and intellectual property rich markets is an egregious error. For to do so, one must make the assumption that prior to business combinations, the assets of both companies have been faithfully represented. This we know is not the case. Accountants, and the businesses they attempt to represent, have never appropriately taken into consideration the value of intellectual property and intangible assets. Let us take a moment to review why we are here. Over the past three decades, an increasing proportion of our Gross Domestic Product and our gross exports have taken the form of knowledge and technology products. In a recent study by PricewaterhouseCoopers LLP, a trend analysis of intellectual asset management revealed that, in 1998, intellectual assets accounted for more than 78% of the total value of the S&P 500. 1 However, if one tunnels beneath the surface of this report, it is more accurate to state that over 75% of the value of the S&P 500 is not captured by the notion of “book value”. This is not to say that all of that value should be described as an asset. This report taken together with numerous other studies and articles, highlights a fundamental limitation in the recent efforts taken by this Committee and the FASB to clarify the concepts embedded in what has been nefariously dubbed “goodwill”. As a practical matter, the words “intangible assets and intellectual property” and “goodwill” should not be used in the same breath. To do so is to state a lack of understanding of the U.S. Code, the Uniform Commercial Code, and most state property statutes. Assets including patents, copyrights, databases, trademarks (with some limitations), licenses, and business documents exist as property, are conveyed by right, can be severable through the exercise of a lien or sale, and enjoy protective rights to the same degree as other forms of personal and commercial property. Failure to understand them does not mean that they simply don’t exist. The inability for present accounting practices to place them reliably on the balance sheets of America should not penalize the burgeoning majority of corporations for whom these serve as the chief assets of the enterprise. Book value, value investing, and new economy business do not have to be polar opposites. They are viewed as such, solely based on the insufficiency of present market metrics. It is my intent to illuminate two general areas of concern — asset definition and valuation — and then make recommendations on how this Committee and other interested parties may elect to add dimension to the historically flat 15th century horizon. Asset Definition Current federal and state law is largely adequate to accommodate the use of intellectual property and intangible assets in the same way “bricks and mortar” assets have been used. The title to, assignment of interest in, and sale of patents, copyrights, databases, licenses and other executory contracts are covered adequately in statute. The absence of these assets from the balance sheet is unconscionable. Consider the recent bankruptcy of an internationally known U.S. corporation which is best known for underwear and sports attire. While looms, inventory, and mills were listed as assets of the corporation, no value inured to the benefit of the creditors for the naming rights to a professional sports complex. No value was on the books for the right to place the likeness of sports teams and cartoon characters on t-shirts and under shorts. As a creditor, I certainly would rather have the naming rights for ProPlayer Stadium than a cotton mill! Yet, given current accounting standards, that option for value attributed to that real property interest didn’t exist. An example of the confusion surrounding the deployment of intellectual property assets on the balance sheets of U.S. companies is an ambiguity that exists in the U.S. Patent and Trademark Office. In an effort to meet the increasing demands of the innovative 90’s, the USPTO hired more, specially trained examiners. On the surface, this sounds like a good idea. However, patents embody two realities which make the hiring of experts antithetical to the very purpose for which it was done. First, a patent needs to be novel. That is to say that, within reason, the idea is a new one. Second, a patent needs to be non-obvious. In an effort to meet market demands, patent examiners have been meticulously combing referenced prior art to make determinations on allowance. Highly trained examiners have neither the systems or, in many cases, the knowledge to examine prior art from other business sectors. This focus has led to an unfortunate and unintentional myopia with devastating import. Many patents issued today fail to cite all relevant prior art — a reality which could lead to the re-examination and ultimate disallowance of countless properties. In a recent study our company did on electronic banking and finance, we found that, searching through patents issued over the past 23 years alone, over 2,363 patents have been issued. Using a process we call Innovation Extraction Analysis, we were able to identify over 50% of the properties in this space which failed to cite prior art. Additionally, over 15% of the innovations happened concurrently. In these cases, near identical patents issued providing statutory monopoly rights to both or neither party. Our data is not alone in identifying this exemplary problem. Marc Pearl, general counsel for the Information Technology Association of America stated, “Educating patent examiners on what techniques and technologies exist can help boost the credibility of patents and, in the process, create a body of documentation examiners can refer to when considering patent applications.” 2 Any statement suggesting that one needs to “boost the credibility” of intellectual property should serve as a wake up call to Congress and Corporate America. When major corporations donate patent portfolios to non-profits for tax deductions and when the patents embedded in those donations are soon expired or likely targets for disallowance, one can see a multi-billion dollar accounting problem that transcends simple business combination debates. In short, clarifying that an asset even exists is a concern which must be addressed prior to figuring out how it is accounted. Asset Valuation Title 15 of the U.S. Code, the Uniform Commercial Code and Bankruptcy law all presume that businesses and financial institutions use intellectual property and intangible assets. However, failure to account for these assets under uniform accounting practices goes on. Why? I would like to propose two hypotheses. First, much of today’s economy has no traditional basis. By this I mean that one cannot, under any stretch of the imagination, cost account the value of an asset that cures cancer, facilitates wireless transmission of data, and models the buying profile of the on-line baby boomers. One of my greatest innovations was the development of a technology which allowed for the surgical removal of tumors from the spinal cord using multi-axial laser guidance. This technology and the underlying patent cost $11,089. The patent filing cost was $11,000 — the device manufacturing cost was $89 and I built it in my apartment. While an accountant could correctly amortize this property — valued at $11,089 — over a period of 20 years, would that be correct? When this property was incorporated into 5 international corporations’ diagnostic equipment products, what was the basis for the value of the asset? Do you suppose, that after over $250 million in procedures have been billed, using this technology, one would concur with an accountant booking the value of this IP at barely $11,000? No. In point of fact, this asset, to three corporations was worth over $15 million of saved R&D expense. This enabling technology revolutionized a market. The correlation between the value of innovation and its cost is diminutive. Value determined by multiple historically relevant transactions, not by hypothecating future earnings, can be reliably and conservatively measured. A second reason for this failure is the lack of specificity surrounding the amortization of assets. In an effort to build a manageable universe, depreciation is lumped into arbitrary time intervals which have no relation to the asset. The concept of asset specific amortization is technically attainable with present technology; it simply requires leadership in its deployment — something that the accounting industry has not yet done. A biopharmaceutical patent may have value for 20 years, but an integrated circuit may retain value 15 months. Hundreds of millions of dollars placed into the construction of the center fuel tank of the Space Shuttle are invested for less than 3 minutes of effective life. An innovation which enables voice to coexist with wireless data transmission may have value only until its life as proof-of-concept technology bridges the chasm to metacomputer-based routers. The fact is that historical data — even that extracted from yesterday — can be used to appropriately amortize assets. In short, given the inability to cost account from whence an asset came and the vexing problem of the duration of its use, the flat-earth solution is to simply punt and purchase account “goodwill”. The appraisal industry has been equally unable to clarify the notion of intangible assets and intellectual property. Two schools of thought have been vocal in the value attribution debate. On the one hand, numerous economists and accounts have developed valuation methodologies driven largely from royalty or infringement damages matrices. On the other, investment bankers and consulting firms have tried to divine value from measuring prospective market trajectories. Neither of these provide the basis for the FASB’s proposed guidance for “reliably measured” asset characterizations. 3 The inherent flaw in the appraisal methodologies is the same that is endemic to other hypothecated prospective systems — namely, the systems do not capture the dynamics associated with the collapse of the modeled sector. As evidenced by the banking industry’s recent recoiling from enterprise lending and subordinated debt, when one links value attribution directly to an enterprise or a sector, the collapse of either implodes the model and its resultant predictions. This has led innovative institutions like Bank of America, SunTrust, CS First Boston, Ernst & Young and others to explore new collateralization concepts to find equity alternatives in today’s market. I would like to reiterate the fact that monetized value for intellectual property and intangible assets can be measured based on historical transactions when they are taken in context of the full underlying asset conveyance. Using licensing and sales precedents, the ability to characterize the transaction value associated with present and prospective innovation is modelable — not using prospective equity models but rather relying on historical data. Hybridizing pro forma revenue assumptions and building models of what value the future might hold cannot be reduced to a standard with any level of reliability in the face of wildly fluctuating equity markets. Recommendations 1. Inform the Debate While numerous parties have risen to defend or assault pooling of interest accounting practices thereby catching intellectual property and intangible assets in the “goodwill crossfire”, I believe that it is imperative for Congress to publicly reinforce the fact that intangible assets and intellectual property exist by statute in all debates. Failure to put these assets onto the books and therefore, failing to adequately measure the gross domestic product, while a great national concern, should not confuse the fact that these assets do and will exist as severable property. No recommendation in any direction by the FASB or any other body alters this fact. For America to correctly support the basis of its economy and its currency, the ever-overlooked assets upon which our future rests, need to “count” in the GDP. 2. Applaud Efforts for Accountability The FASB has addressed a significant problem facing corporate America’s financial reporting. Technically, purchase method accounting can be embraced if two realities are addressed. Prior to implementing purchase method accounting, the FASB needs to provide guidance on how to place IP and intangibles on ALL corporate books. While this sounds simple, it isn’t. Contemplate for a moment the following: conservatively assume that 45% of the U.S. economy is built on a “knowledge based” reality. Assume that an entire asset class, which has always existed but has never been accounted, shows up on the books. How do companies handle the earnings and tax consequences? Do we provide a restatement amnesty period so that, in one single moment, all companies get to appropriately audit and place on the books, their IP? While one day, I believe purchase method accounting will enjoy its role as THE standard, that day can only come when ALL assets are counted. Additionally intellectual property, intangible assets, and other assets for that matter, need to be amortized with greater specificity. Anyone who would recommend that Microsoft amortize the code for Windows NT over 20 years should encounter appropriate resistance. Why? Because the asset doesn’t last that long. The laptop upon which this testimony is typed will exist on my company’s books 5 years after I’ve finished using it. If CISCO purchases an enterprise for 500 times “book value” and integrates the resultant technology into the global market with great success, then 20-year amortized goodwill is wrong. Incorrect use of amortization will continue to force companies to inappropriately expense into oblivion the very assets upon which their value lies. The FASB can immediately solve a significant portion of the pooling problem immediately by enacting asset specific amortization. Failure to do so will encourage active and passive misstatement of financials. The Federal government should not allow this error to persist. 3. Vigorously Oppose Short-Term Solutions With Sweeping Ramifications Pooling-of-interest accounting is prone to error. Purchase accounting without proper statement of assets is guaranteed to error. Fixing the pooling problem cannot be done by passively allowing it to persist in an M&A frenzied equity market. The FASB, this Committee, and in fact, the national interest is served by reliably putting into play an entire asset class built by Constitutional Right and Congressional acts 200 years ago. When our economy rises and falls on the emotions of the equity markets rather than anchoring itself to the fortitude of the assets underpinning our constituent enterprises, we should unite to jettison those flat-earth concepts which keep us from exploring a round globe. We can account ex nihilo. I view, as a distinct pleasure, the ability to invite this Committee and all today’s participants to explore the perspectives that our enterprise has aggregated. Our voice will join the chorus of those who strive to accurately represent the value existant in the business of today while capturing the systems necessary to adapt to the inevitable organic changes of tomorrow. Mr. Chairman and distinguished colleagues, let us not inadvertently regress — let us all move forward. 1 – BusinessWire. Intellectual Assets Account for 78 Percent of Total Value of S&P 500, PricewaterhouseCoopers Analysis Finds. April 17, 2000. 2 – Tillet, L. Scott. Patent Office Takes a Fresh Look at the Net. Internet Week, May 15, 2000. 3 – Jenkins, Edmund L. Testimony before the Subcommittee on Finance and Hazardous Materials of

Roundtable Meeting and Discussion of “Accounting for Goodwill”

Gramm Announces Roundtable Discussion of Accounting for Goodwill

Date:  Fri, 2000-06-02

Accounting Ex Nihilo

Financing the Internet — Legal Issues: Conference 06 15-16 in Portland

Date:  Thu, 2000-06-01

University of Southern Maine June 1, 2000 Portland–The legal environment for equity and debt financing of “dot com” companies. Placing a dollar value on intellectual property and using it as collateral for a loan. “Financing the Enterprises of the Internet,” a conference sponsored by the Technology Law Center of the University of Maine School of Law on June 15-16 at the DoubleTree Hotel in Portland, will explore these issues. The conference is designed to benefit attorneys, bankers, accountants, and individuals and businesses who want to learn about the legal environment for financing technology-based companies. Among the many prominent presenters are: Professor of Law Raymond Nimmer, author of The Law of Computer Technology and co-director of the Houston Intellectual Property and Information Law Program; Nancy Funkhouser from Silicon Valley Bank, who will discuss financing alternatives from a bank

Charlotte banks courting tech firms

Date:  Fri, 2000-05-26

By: John Downey The Business Journal May 26, 2000 CHARLOTTE

M·CAM: Finding Value in Ideas and Innovation

Date:  Mon, 2000-05-01

By: Dr. David E. Martin May 2000 Wells Fargo bank didn’t know it was starting e-commerce in 1864. What it did know was that the stagecoach was a risky way to send money from the gold fields of the West to the depositories in the East. Time to market and corporate security — hallmarks of our present, highly evolved business — fostered the notion that the “singing wires” of the telegraph could be used to transfer funds. Happy birthday B-2-B e-commerce! You look marvelous at 136 years of age! Innovation is not new. Neither is the need to manage it in a sensible way. When a patent for stained glass manufacturing was awarded in 1449, the Crown acknowledged that one of the foundations of any successful economy was the notion that limited monopolies — the ability for an innovator to enjoy the fruits of innovation — were necessary to foster entrepreneurial activity which would sustain the realm. In the United States, the framers of the Constitution and the Congress realized that valuing innovation was required to fuel an economy built by fledgling immigrants and therefore afforded to all Americans the right of Intellectual Property. Two hundred and ten years later, the world has awakened to the notion that IP (patents, copyrights, trademarks and knowledge assets) has value and is rushing to figure out how to rectify 500 years of laws and accounting standards in opposition to that notion with the .com universe of today. M·CAM has built a powerful analytic system that serves as the first auditable, ubiquitous intellectual property evaluation system used to calculate the asset liquidation value — the residual value — of all forms of IP and IA. Using over 200 discreet data components, this system allows commercial lenders to use intellectual property and intangible assets as collateral for conventional debt financing. No more does an innovator have to hear the words, “But all you have is a patent, What real asset do you have?” How did it come about? Beginning in 1992, we began experimentation with a simple premise. What would the world look like if value of innovation were viewed based on secondary market value, not primary market application? In an economy where the “B” team tanked the “A” opportunity, is there any possibility that “A” still retains value? Many times the highest and best use for an innovation is a use that was not contemplated by the innovator. When the transcontinental cables linked the Atlantic and Pacific, the “singing wires” were designed to deliver data. However, broad-minded entrepreneurial bankers discovered a use which, in aggregate, has resulted in the single largest liquidity transit process ever conceived — wire transfers. The question to answer then is, how would one model a world where value was what someone would pay for an asset, not what an enterprise built thereon would be “worth?” M·CAM answered it by creating a systematic asset analysis heuristic that asks two relatively simple questions: Do you own an asset? And does anybody care? Ownership Asset ownership is an arena largely ignored by the myriad of “invention.com” businesses that have proliferated over the past year and a half. Presumption that, because someone says they have a patent (and can produce a patent #), there is a property there to leverage is fallacious. The Commissioner of the USPTO’s acknowledging that the examination process has not kept pace with innovations contained in applications, coupled with the blossoming of infringement litigation, makes it clear that the assumption of de facto property rights is fundamentally flawed. To determine title, M·CAM’s system reviews classic title considerations and then evaluates disallowance probability based on an interrogation of other patent claims and international data archives. Frequently patent prosecutors and examiners search conveniently available data rather than going to improbable data sources. Failure to research and examine a world filled with prior art undermines presumptions of novelty, non-obviousness, and timely reduction to practice. Consider the implications of a major U.S. corporation donating patent portfolios to a university, thereby taking a tax-deductible donation based on an estimated valuation. If the “property” claim is disallowed, how does one handle the tax liability created by the basis-less donation? What happens when the Picasso in the parlor is a forgery? Our method uses patent references and claim language to interrogate international databases in order to rate the uniqueness of an asset. Who Cares? To answer the second question, and derive “asset liquidation value” or ALV, it is necessary to determine the value of property apart from the going concern in which it resides. Methodology employed by M·CAM does not predict future value or securitization value for royalty streams; rather, it identifies three integrated variables that serve as the basis for value determinations. Much like the auto industry’s Blue Book, we perform unimproved asset characterization that defines an asset-specific:

• Effective life and depreciation;
• Transaction characterization; and,
• Non-aligned sector application value.

Effective Life and Depreciation Each form of IP has a statutory life during which the limited monopoly right is afforded. However, statutory life and effective life are not correlated. A biopharmaceutical patent may have value for 20 years but an integrated circuit may be antiquated in 18 months. Because statutory life and useful life are not correlated, M·CAM tracks three elements in determining depreciation characteristics. First, velocity measurements are made based on the frequency of innovation in IP claims. This is integrated with velocity measurements in the application of innovation in commercial products and the adoption thereof. All of this is characterized by the resultant innovation curve, which identifies the uniqueness of an asset, and the true novelty it represents. Transaction Characterization In a risk transfer business model, our analysis allows one to rate the desirability of currency denominated asset transfers in any sector. Some IP secondary market opportunities result in cash sales or licenses. Others are denominated in equity and still others are derived from alliances between going concerns. M·CAM provides secured asset purchase contracts to lenders, guaranteeing the purchase of IP by M·CAM in the event of default. This establishes a liquidity-backed collateral enhancement program for patents, copyrights, trademarks, databases, and other forms of intangible assets. Therefore, in M·CAM’s determination of ALV, cash is rewarded and alliance-reliant liquidations are penalized, because the mechanism whereby M·CAM may take title to an asset (e.g. bankruptcy or winding-up of a going concern) precludes a B-2-B immediate liquidation. This weighting can be adjusted for applications of the model which are looking at present day, fair market value determinations. When the telegraph was invented, it made no claims to be the information super-highway upon which e-commerce would happen. Wells Fargo figured that out. The Kennicot Mining Company reversed alchemy when the California and Yukon gold rushes required the manufacturing of thousands of miles of copper wire. Gold had its luster but copper connected the world and resulted in phenomenal wealth creation. In fact, innovation to solve one problem often solves many more, unwittingly. When 3M’s adhesive doesn’t work for the desired application, make Post-It notes. In M·CAM’s Innovation Extraction Analysis, non-aligned sector application is characterized in three orthogonal opportunities. Successful IP management strategies may build complex asset management recommendations. However, potentially greater value can be appreciated when one looks first at the asset and then the enterprises that are enabled thereby. Viewing the asset first, and then the enterprise, yields value that is not correlated to market caps, because it is measuring fundamentally different characteristics. Using the three “relevance adjustment” filters described above, M·CAM calculates asset transfer value, which is expressed as a Certified Asset Purchase Price (CAPPcharacteri) with an affiliated depreciation index score. Being used by banks, accounting firms and public and private institutions, this methodology has the additional value of being 100% auditable. Enlightenment is often born out of a disciplined leveraging of a chance discovery. The printing press democratized literacy; the gold rush democratized entrepreneurialism. By analyzing and calculating the “value” of ideas and innovations, M·CAM’s system seeks to democratize critical capital markets long inaccessible to the most creative in our society. In the examination of the role of innovation in our economy and the appropriate management thereof, it is important to realize that we have a great responsibility to allow our minds to open, breaking apart the conventions that long have sequestered the great opportunities afforded by the innovation process. Ideas do indeed have value.

UVa alum lauds tech boom as Jeffersonian at conference

Date:  Wed, 2000-04-19

By: Reed Williams Daily Progress Staff Writer April 19, 2000 Halsey Minor, founder of a San Francisco-based news-media company, CNET, once spent $1,200 in toll calls to close a business deal — on his honeymoon. It’s no coincidence that a man with Minor’s remarkable dedication to entrepreneurial pursuits was selected by the Virginia Piedmont Technology Council as its Tech Awards 2000 keynote speaker. Speaking to more than 280 tech enthusiasts in the ballroom of the Boar’s Head Inn & Sports Club, the Charlottesville native and University of Virginia graduate stressed that Thomas Jefferson would have been a ferverent supporter of technology and distance education in the 21st century. “I think he would have actually, in this day and age, cared far less about the physical qualities of the university and would have cared a lot more about the connectedness of the university to the global community,” he said of the founder and architect of UVa. “And I think [Jefferson] would have been obsessive over students being able to participate in classrooms with students all around the world,” Minor, also CNET’s chairman and chief executive officer, told scores of beaming spectators. The second annual awards dinner honored individuals and organizations that the VPTC felt have profoundly affected Central Virginia’s technology community. The Spotlight Award for the company shedding the most positive attention on the region was given to M·CAM Inc., which is developing methods to value intellectual property. The award was sponsored by Virginia Gateway. Broadslate Networks Inc., a start-up company that provides high-speed Internet access through digital subscriber lines, won the Rocket Award. This award was sponsored by Working Weekly and given to Broadslate for its having moved quickly from business concept to commercialization. Adenosine Therapeutics, a biotechnology company that spun out of UVa, won the Breakthrough Award for achieving a noteworthy advance. Virginia’s Center for Innovative Technology presented this award. The Red Apple Award was presented to the K-12 science or technology teacher who most efficiently uses technological resources to excite and prepare students. Dave Matt, technology coordinator for Orange County’s public schools, received this award from UVa’s Office of the Vice President for Research. Delegate Paul C. Harris, R – Albemarle, clinched the Navigator Award, which was given by Woods, Rogers & Hazelgrove, for the politician most responsible for promoting technology start-ups. Adelphia Business Solutions sponsored the Community Award, which was won by City Councilor Meredith Richards for founding the Computers 4 Kids initiative. With City Council elections just around the corner, the Democratic incumbent, who blew a kiss to the audience and then planted one on the cheek of David Kalergis, executive director of Virginia Gateway, on her way to the podium, took the opportunity to laud the VPTC and local initiatives that have bridged the yawning “digital-divide. “I think we’re all investing in the future of our children,” she said.

From the Slide-rule to the Spreadsheet – David Martin’s Keynote address at NASA

Date:  Fri, 2000-03-10

David E. Martin

M·CAM, Marsh USA in program development pact

Date:  Tue, 2000-02-29

Bridge News February 29, 2000 M·CAM and Marsh USA entered a strategic relationship to develop a program to enhance the value of intellectual property as collateral so it can be used to secure commercial debt. The companies will work to develop liquidity sufficient to support the mid-year introduction of a program based on M·CAM’s Certified Asset Purchase Price contracts. “This collaboration with Marsh will enable us to roll out our domestic U.S. collateral enhancement program rapidly,” said David Martin, M·CAM’s founder and chief executive. “This relationship will create a new type of debt financing that we believe has the potential to significantly alter the way that certain kinds of organizations finance themselves and certain kinds of lenders look at the universe of borrowers.” In practice, the CAPP contract would depreciate based upon asset specific parameters. CAPP provides the lender with information about the depreciation schedule for the asset’s life and also identifies critical covenant considerations that preserve the value of the asset and the integrity of the lien. The lender is not obligated to sell the asset to M·CAM and may seek other buyers limited only by M·CAM’s right of first refusal to purchase the asset. The core business of M·CAM is the monetization of intellectual property and other intangible assets for three primary sectors: banking and commercial finance, under-utilized asset liquidation and actuarial asset accounting. Initially formed to provide a mechanism for lenders to use intellectual property and intangible assets as collateral for lending by providing liquidity-backed puts to attribute value to these assets, M·CAM has applied its analysis and marketing expertise to broaden its markets horizontally. M·CAM’s proprietary analytic systems are the first to standardize the determination of enterprise-independent value for properties such as patents, copyrights, licenses, trademarks and other intangible assets. Additionally, these systems allow business and regulators to corroborate the validity of property claims by conducting innovation audits on international intellectual property and publication databases.

Workshop to Focus on Value of Intellectual Property

Date:  Mon, 2000-02-28

Carol Litchti Inside Business February 28, 2000 NASA Langley Research Center’s scientists invent new technology for the aerospace industry. Jefferson Laboratory’s researchers race electrons to study nuclear physics. Local universities conduct their own research, coming up with ideas that could have commercial potential. But each institution has its own way of recording information and attempting to commercialize the technology, inventions and patents it generates. Those ideas, known as intellectual property, could be a greater asset to Hampton Roads if the information gathered and processed used were consistent. That’s why NASA’s technology commercialization department and the Hampton Roads Technology Incubator are holding a works session on March 10 to start development of a uniform method of assessing intellectual property. “It will be the first time some of these people have been in the same room,” said Marty Kaszubowski, director of the incubator. The goal is to develop a regional approach to intellectual property after studying the best examples of what research institutions and corporations do. “We want a sense of the best practices of other government labs and universities and we want to be aware of the best practices of all the organizations and use that to build a region-wide capability of gathering intellectual property information and reporting it,” Kaszubowski said. David Martin, founder of M·CAM, a Charlottesville company that assesses intellectual property as collateral, is scheduled to speak at the workshop. His company has developed software to assess intellectual property. Attendance at the workshop is by invitation only, but Kaszubowski said he could see the event growing into an annual conference. Sam Morello, director of NASA’s technology commercialization program, and his staff are helping Kaszubowski arrange the workshop. NASA Langley works with the Research Triangle Institute, a North Carolina-based nonprofit research agency with an office in Hampton, on commercializing technology NASA has developed. “That’s a process that is not just beneficial to NASA, but also would be helpful if it was available to others in the region,” said Terry Riley, director of the Hampton Roads Technology Council, which oversees the incubator. “It’s a great thing and I’m all for stealing an idea and broadening it to make it available to the region.” Developing a regional technology assessment program has been a goal of the Hampton Roads Partnership, a group of public and private leaders from the region. Having a regional method for assessing intellectual property should help promote the start of new businesses and new product lines for existing companies. “That’s how a region becomes more than the sum of its parts,” Kaszubowski said.