March 30, 2005

Promoting Innovation [7:44 am]

How Ampex’s patent portfolio has resurrected the value of a moribund company: The Profits in the Attic

The hottest tech stock in America hasn’t been surging because of what its products promise to do in the future, but for breakthroughs it made more than a decade ago. Ampex has quietly risen a whopping 2,000 percent in the past six months. It is perhaps the most extreme vindication of Kevin G. Rivette and David Kline’s book Rembrandts in the Attic, which argued that companies’ patent collections could constitute an overlooked treasure trove. In the past year, Ampex has found several Rembrandts in its attic, and maybe even a Renoir or two.

Never heard of Ampex? It has a long and storied history. Founded in 1944 in what is now Silicon Valley, Ampex was a pioneer in audio and video recording. [...] In the 1960s, Ampex invented slow-motion instant replay and then focused on developing efforts to store and retrieve digital images. In the early 1990s, it introduced digital compression technology (or DCT), which is used in the industrial-strength recording machines it sells to the government and television stations.

[...] As Ampex struggled, the continuing revolution in consumer electronics—in particular the spread of digitization—laid the groundwork for Ampex’s rebirth. Have you visited a Circuit City lately? The aisles are full of DVD players, DVRs, digital cameras, camera-equipped cell phones, and digital camcorders. None of these was a major consumer product 10 years ago. And all of them rely on the storage and retrieval of digital images. And can you guess who held a bunch of patents on the storage and retrieval of digital images? “We were finding that the patents we gained as a result of developing DCT in the 1990s were being used in today’s ‘trendy’ electronics,” says Karen Dexter, director of investor relations at Ampex.

And so the company began to contact consumer electronics giants, an American David twirling a patent slingshot at Japanese giants. [...]

The suits themselves didn’t garner much attention. But last fall, the Japanese electronics giants began to fold. [...]

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