We shall see. The trading in Mattersight’s common, on the NASDAQ, will likely be choppy today.
It sure seems as though someone had some inside information on Mattersight, after about 10 am yesterday, and repeatedly traded on it — in pretty significant volumes, from there on out — as I mentioned last night.
So, be careful out there.
Take a look at the chart at right. Click to enlarge it. Note particularly that after about the second hour of NASDAQ trading this morning, both the clearing-prices for Mattersight, and the volumes, went through the roof. I’ve marked it in gold, for clarity.
There was no corporate news. And it is a certainty that the patents, announced two days ago, now, wouldn’t be market-movers.
No, my guess is that someone has gleaned some advance (inside?) information about whether the tender offer for Mattersight’s Series B Preferred will be extended beyond this Friday, at 5 pm, Chicago time.
Could be a very bumpy trading day, tomorrow.
We’ll keep an eye on it.
Given that at least four patent applications were filed by Mattersight (then eLoyalty) back in the middle of the last decade, in order to yield these two 2012 method patent grants, I thought I’d offer a little more background on why spending the resources to win such patents may well not be of much practical benefit to the shareholders of Mattersight — to whom Mr. Conway owes his highest duties. [Side Note: the image, at right, is from a patent actually issued in 2009 — a paperclip, bent and mounted to a small plastic finger ring — to swat flies! Don’t believe me? Take a look at US Patent No. 7,484,328.]
Where was I? Oh, right. In Bilski v. Kappos, 561 U. S. ____ (2010), the United States Supreme Court came within a whisper (one vote, on one part of a concurring opinion) of deciding that business method process patents aren’t really patents at all. That is, the Court is deeply skeptical about whether they embody any novel, useful invention at all.
It is thus, in my personal opinion, also pretty clear that the Court would be loathe to let a holder of such a patent (a business method patent like the ones Mattersight now holds) win an infringement suit for money damages, or win an injunction — against other market participants who were also simply analyzing call center data for useful customer service patterns and learnings. That, I think, would be the proverbial bridge too far, for the current Supreme Court.
So, let’s turn to the actual language of Bilski, shall we? It is replete with warning lights, here:
. . .With ever more people trying to innovate and thus seeking patent protections for their inventions, the patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles. . . .
[The Patent Act, at] §273 appears to leave open the possibility of some business method patents, it does not suggest broad patentability of such claimed inventions. . . . The Information Age empowers people with new capacities to perform statistical analyses and mathematical calculations with a speed and sophistication that enable the design of protocols for more efficient performance of a vast number of business tasks. If a high enough bar is not set when considering patent applications of this sort, patent examiners and courts could be flooded with claims that would put a chill on creative endeavor and dynamic change. . . .
[From the four-Justice concurring opinion, then:]. . .But I would take a different approach. Rather than making any broad statements about how to define the term “process” in §101 or tinkering with the bounds of the category of unpatentable, abstract ideas, I would restore patent law to its historical and constitutional moorings. For centuries, it was considered well established that a series of steps for conducting business was not, in itself, patentable. . . .
Since at least the days of Assyrian merchants, people have devised better and better ways to conduct business. Yet it appears that neither the Patent Clause, nor early patent law, nor the current §101 contemplated or was publicly understood to mean that such innovations are patentable. Although it may be difficult to define with precision what is a patentable “process” under §101, the historical clues converge on one conclusion: A business method is not a “process.” And to the extent that there is ambiguity, we should be mindful of our judicial role. . . .
Indeed, the introduction of the “useful, concrete, and tangible result” approach to patentability, associated with the Federal Circuit’s State Street decision, preceded the granting of patents that “ranged from the somewhat ridiculous to the truly ab-surd.” In re Bilski, 545 F. 3d 943, 1004 (CA Fed. 2008)(Mayer, J., dissenting — citing patents on, inter alia, a “method of training janitors to dust and vacuum using video displays,” a “system for toilet reservations,” and a “method of using color-coded bracelets to designate dating status in order to limit ‘the embarrassment of rejection’”). . . .
And so — whatever else may be said of Mr. Conway’s two patents — it is clear that they are method or process patents, and to the extent that they embody an invention, the invention is a novel way of doing business. The new method of doing business is to extract tiny bits of useful information, from much more voluminous audio-recordings of telehone interactions between company representatives, and company customers. After Bilski, it is increasingly clear that the highest court in the land takes a dim view of these sorts of patents, at least insofar as they might be used as a monopolists’ bludgeon — to keep other businesses off of the same playing field, without paying Mr. Conway and company a license fee.
In sum, the patents are — intrinsically — thus worth very little. On the other hand, I am sure Mattersight (and eLoyalty before it) paid into the high-single digit millions in legal fees to procure the two patents, from at least four separate patent applications filed by the parties in this arena.
I just hope no one is paying the inventors any license fee, out of Mattersight coffers — for the supposed patent rights owned by Conway, and his co-inventors. That would be sensless.
First, for ease of reference, here are the two patents, in full (US Pat. Nos. 7,995,717, and 8,094,803) — as well as a copy of the Mattersight presser touting the same.
To be sure, most learned observers would deem the announcement. . . yawn-inducing. Why? Well, because the patents — on the behavioral analytics methods Mr. Conway’s company employs — are what are known in the trade as “business method patents”.
As many observers have suggested, after Bilski v. Kappos 561 U.S. ___, 130 S. Ct. 3218, 177 L. Ed. 2d 792, 95 U.S.P.Q.2d 1001, 2010 ILRC 2097, 30 ILRD 8 (2010), the Supreme Court was one vote shy of killing business method patents, altogether. And, starting this fall, the USPTO will allow a newly-expedited post-issuance review process, for the purpose of modifying, narrowing and/or invalidating such business method patents.
There is real concern that such patents don’t really embody inventions, at all.
So,as my graphic suggests. . . the two patents Kelly Conway, et al. — on behalf of Mattersight — were issued. . . matter, but only slightly.
Unless extended, the previously-announced tender offer for the Series B 7% Convertible Preferred Stock of Mattersight will expire at 5 pm Chicago time on this Friday. Choose wisely.
Is $8.60, plus unpaid dividends fair?
Only you can decide that.
At the end of 2010, Mattersight (then known as eLoyalty Corp.) had an accumulated deficit of over $204 million (on page 31 of its SEC-filed Form 10-K, first line, middle column), from the time of it began reporting as a public company in 1999.
By December 31, 2011 — almost entirely as a result of sectioning off the old eLoyalty businesses, and sending them back to Teletech, Mr. Conway was able to “engineer” the disappearance of almost $20 million of the accumulated deficit from 2010. More specifically, the Integrated Contact Solutions business unit and the “eLoyalty” registered trademark/tradename were transferred to a subsidiary of TeleTech Holdings, Inc. — per this August 2011 SEC filed Form 8-K. Mr. Conway transferred the lions’ share of the nearly $20 million in deficits, with that trademark.
By the end of 2011, Mr. Conway was showing an accumulated deficit of “only” about $185 million, per the bottom line, middle column, of page 31 of the most recently filed SEC Form 10-K.
And for this astoundingly terrible performance, he has received over $7 million (in cash alone), from 1999 to 2012. He has received many, many millions more in equity (and still regularly sells a portion of his equity awards into the open market, or has the company buy them back, for cash, in order to cover his income tax liability on those free grants), benefitis and perks, and other non-cash compensation. I won’t even bother to total it all up — as it is simply obscene that a public company of any size might lose over a fifth of a billion dollars over 13 years, and rack up hundreds of millions of dollars of accumulated deficits, and still keep the very same CEO (throughout) — to the tune of $7 million in cash compensation.
This clearly represents a broken corporate governance model, in my estimation.
Not wanting to seem too much the sad-sack, here — and ever looking for the silver lining, in it all — I suppose the above does allow Mr. Conway and Co. a very customer-friendly (and entirely truthful!) sound-bite, as he calls on the insurance companies he provides his services to: “Mattersight simply must be giving you a very fair price, on these behavioral analytics, as We’ve. Never. Been. Able. To. Make. A. GAAP. Profit. On. Our. Actual. Business.“
Astounding.
An open letter I just sent to the investor relations department of Mattersight (previously known as eLoyalty) — feel free to write them at the above address. More to come:
Ladies and Gentlemen:
I know you won’t be able to reply (I guess I’ll just hire a lawyer!), but how is it even remotely possible — at Mattersight (and before that, at eLoyalty) a company with a board of directors charged with SOX-, Dodd-Frank- and general fiduciary-duties — that a CEO and Chairman who has never turned in a single dime of GAAP earnings per share, after taxes, in over 13 years of running eLoyalty, and now Mattersight. . .
. . .receives multiple millions in annual performance bonuses, and all-cash executive compensation?
How can that be? Not a dime of net profit, under GAAP (not Conway’s forever “as-adjusted” accounting), in over 13 years — for the shareholders — ever!?
And, just on a rough total for Kelly Conway alone — I get over $7 million in pure cash compensation, going back to 1999.
At some point, I would think that Conway would be so embarrassed by his own ridiculously-wrong rhetoric (we see profitability “just around the corner” — for 13 years, running!) — that he would turn in his resignation, voluntarily.
I hadn’t looked in on this investment for about five years — figuring that the venture partners would eventually put him out, after seven years straight of net GAAP LPS (losses per share), each comprising additions to the shareholders’ deficits. . . but no, now he has a shiny new company to run, to boot.
Maybe I’ll just start a blog called Mattersighfail.wordpress.com. Yeh — that’s the ticket.
Interesting Yahoo! Mattersight stock chatboard tidbit:
. . .Tyson Marion, 33 year old marketer and strategy whiz is gone after only 9 months. . .
His exit payday: $355,000 lump sum payment and accelerated vesting of 31,250 shares of stock.
A nice day at the office for Mr. Marion. Not even 9 months of service, and he walks off with over $500,000 for his trouble, (plus whatever egregious salary he pulled during the 9 mos). Thanks for the effort.
Another example of KC’s failure as an executive.
I’d ask the board of directors to comment or act, but wouldn’t want them to wake up from their decade long nap, or disturb their yachting excursions.
Nothing new here, move along. . . .
Mr. Marion apparently worked for Teletech when the transfer of the eLoyalty business was being negotiated. How is that okay, from a conflicts perspective? Doesn’t Mattersight have a policy against this, post Sarbanes-Oxley? Doesn’t TeleTech? Odd.
What Matters? 