Being A Gartner "Cool Vendor" May "Matter" -- But Only "Slightly" So...

After-hours tonight, Mattersight's corporate denizens press-released the fact that the company has been selected by Gartner as a "Cool Vender" (click to enlarge my image, at right). If memory serves, old eLoyalty Corp. was selected as a CRM "Cool Vendor" in 2005 or 2006, but then never made the list again, thereafter.

This is clearly Mattersight's first year making the list -- but according to Gartner's own website promoting the crop of last year's "Cool Venders" -- more than 300 are so-selected each year. The Cool Venders are companies that Gardner encourages others to do business with -- but also candidly labels as having a higher risk of not being independent (or in existence, as a stand-alone entity?) in five years' time, than their more-established competitors.

So -- I was left wondering whether this is such a good thing. I mean the eLoyalty businesses now belong to someone else, some five years after being named a "Cool Vender". . . so, I'd suggest that this accolade matters -- but only slightly.

Your mileage may vary -- in fact, it probably does. So be it.

Of Interesting -- And Specific -- Site Visitor-Paths...

So, as is often the case with blogs like this (i.e., ones that critique political or business leadership) -- what is posted is rendered perhaps a little-less important -- if certain insiders do not actually see, read and reflect upon it.

That is no problem -- these days. Why? Well, first off -- we know for a fact that the General Counsel and Senior Vice President of Mattersight herself had our site shut-down for several days about a week ago (back story on that, here), using a plainly-specious Digital Millennium Copyright Act extra-judicial "take-down notice" which made an unsupportable copyright infringement claim.

In addition, See the image at bottom -- click it to enlarge. Clearly, Mattersight HQ is monitoring the stories written here:




I'll never disclose the identities of specific persons (except Carsen, Noon and Conway) from inside Mattersight who visit -- of course. But I do think it relevant to note that many computers resident inside Mattersight's internal firewall visit -- and visit regularly, here.

A Coming R&D Drain -- On Mattersight's Revenue?

Funny. It just occurred to me (on a train) that -- throughout Europe, and eventually in Asia -- Mattersight's core offering is going to require significant new R&D burn, before it will be of real value to local clients. Why?

Well, almost all of the Behavioral Analytics^TM suite of tools is driven by non-verbal cues, and to a lesser extent, by interpreting idioms. Each of these vary -- and vary widely -- across the differing languages spoken in Europe.

A long silence -- on a phone call, in French -- may have a very different contextualized meaning, than a silence of the same duration in a German or Italian call. Thus, I suspect that much of the seven-plus years' worth of invested expenses -- in Behavioral Analytics in the US will need to be "done over" -- on a country by country, basis in Europe. And certainly so, in Japan, and the rest of Asia (think cultural differences; and tonal languages, to boot!).

At bottom, the business model may not be scalable, beyond the US and the United Kingdom.

What do you think? Let me know, in the comment box. I'll make your ideas a new post, whether you agree or disagree. I'm inclined to create (for any such posts) a "contra" view graphic, too. Go ahead -- jump in!

Balanced Coverage | Three New Behavioral Analytics™ "Pilot" Customers Announced, Tonight

As the Mattersight audience is a new one (to my style of blogging, at least), let me announce my long-standing blogging policy: I will endeavor to give at least a fair airing to Mattersight's-corporate sponsored releases, as my other duties allow. There may be times when I'll frankly disbelieve what Conway & Co. say in those releases -- but tonight is not one of them. No, I am just as sober as a parson on a Sunday morning -- about what it all really means.

From the company's press release, then -- a bit (do go read it all):

. . .These pilots will leverage Mattersight's strong competencies and expertise in managing big data when applying its behavioral model algorithms. Every day, Mattersight captures over 70 trillion data attributes, applies over 2 million algorithms, executes over 250 billion computations, and processes over 350 TB of data in order to provide its customers with new and contextually accurate information to understand their customers and improve their operations.

"We are pleased to announce these new customers and the validation they give to Behavioral Analytics, and our unique behavioral model applications and algorithms," said Kelly Conway, Mattersight's President and CEO. . . .

On the NASDAQ tonight, MATR closed down about 3.3 percent for the day. I suppose my chief concern here is that Mattersight is a public company, and has been one for coming up on 12 years now -- with lines of business stretching back over 16 years (the additional four while still a captive of its prior parent) -- and its current "main offering" is still in pilot mode.

This is so because Mattersight transferred the vast bulk of the customer loyalty and consulting businesses to TeleTech, along with the name "eLoyalty" last year. That leaves Conway & Co. with what some might say is a 16 year old publicly-traded "development-stage" company. But Mattersight is not a biotech or pharma -- with a life-saver just around the corner, here. And that's going to be, in my estimation, kind of a tough sell to investors -- in these jittery market-times. [If the readership would prefer that I not cover corporate releases, just say so -- in the comment box. I do listen.]

More "Specific Consent" Gloss, On the New EU Privacy Directives Applicable To Mattersight's EU Business Model

Allow me to amplify one point I made about the above topic, in passing, most recently here.

I think the biggest stumbling block to a pan-EU rollout of Mattersight's Behavioral Analytics^TM offering is going to be getting a comprehensive, but also purposes-specific, consent from each customer interaction (needed for each interaction by phone, or by any electronic communication -- e-mail, SMS or text). The general consent that Mattersight is entitled to rely upon in the United States, Canada and Mexico is not going to be even remotely close to adequate under the new EU Privacy Directives. The law could change, but for now it requires that each consent must be specific for the different purposes that the voice, location and text data is collected, used or otherwise processed (e.g., profiling or behavioral targeting), i.e., it cannot be lawfully obtained through general terms and conditions check-boxes or consents. In addition, an opt-out mechanism does not constitute an adequate mechanism to obtain informed user consent under the EU law.


Moreover, if the purposes of the processing (by Mattersight) change in a material way, the data controller (i.e., the entity that determines the purposes and means of collecting, using or processing the data -- here, Mattersight) must seek renewed specific consent of the individual EU member state citizen, before proceeding with the new analysis/purpose. [Of course, should a citizen of any EU member state request, Mattersight has to stand ready to both "erase" and "forget" what it learned. Daunting.]

As a US citizen, I actually think this EU requirement is over the top, and I am helping clients address it everyday -- including seeking changes to the Directives' formal interps -- but for now, were I the GC of Mattersight, I'd be decidedly-nervous about my Behavioral Analytics' business model in Europe. Why? Because the fines for violations are clearly set at punishing levels. Levels that would wipe any net margin on the business off of Mattersight's books -- and eat into its cash-flow.

So, as ever, be careful out there.

Sanity Makes A Come-Back. . .

This site has been restored due to the diligent and thoughtful analysis of the staff at Wordpress.com/Automattic. So, now the blogspot address will return to backup status.

I am very grateful -- both Wordpress.com and Blogger.com run fine operations -- fair, level headed and balanced. And still protective of free expression about matters of public concern. [The image at right is a lil' shout-out to the GC, as well to the CEO -- of Mattersight. Of course any copyright on the original image remains the property of Mattersight. Fair use for the purpose of identification, and protected parody are both claimed here. So, be careful out there!]

Reprinted below is the nice note I received this morning. Thanks, Anthony!

April 25, 2012 9:58 AM

Hi,

Please note that, upon further review (apologies for the delay), the image file in question has been restored. The initial notice should have been denied by a staff member (the file in question was identified in a follow-up email sent after the notice was received). Should the complainant wish to report any further instances of copyright infringement, they will need to restart the process. Our apologies for the trouble.

Thank you.

-- Anthony
WordPress.com

Indeed -- sanity makes a comeback!

Of DMCA Notice Excesses -- And "Transforming" Parodies, Under US Copyright Law

File this one under "be careful what you wish for" -- as an in-house corporate general counsel. [Preliminary editorial note, here: please understand that these rules only apply to public figures, and only when acting in their "public" capacities -- as in being the CEO of a public company.] For the moment, at least, the Wordpress.com version of this site has been disabled, due to the request of the General Counsel of Mattersight. She filed a DMCA "Takedown Notice" at Wordpress, related to my old bannerhead. If you enlarge the image at right (click on it!), you will see the steps I took to transform the image. My oldest bannerhead had transformed Mr. Conway to the point shown on the end of the top line (when the DCMA request to take it down was made). My subsequent efforts are plainly so transformative as to create new works -- in which case, the sampling of the original work is permitted as fair use, and is clearly part of a parody, now. As CEO, Mr. Conway has -- in true Transylvanian fashion -- been able to suck out of Mattersight (and eLoyalty before it) over $10.4 million in cash, and perhaps $25 to $35 million (including equity grants) all in, over the last 13 years. All of this while never once reporting GAAP Annual EPS -- or earnings for the common shareholders (NASDAQ: MATR). A parody of a public figure (even one made from a copyrighted work, but transformed, by art and skill) -- as a means of commentary on his performance -- is plainly protected as "fair use" under the applicable US common law. Mattersight is headquartered in the United States, and I live here too. US law allows this image, despite the swooning palpitations of Mattersight's General Counsel. [See Campbell v. Acuff-Rose Music, 510 U.S. 569 (1994).] Moreover, a federal District Court in Northern California recently held -- under similar circumstances -- that people in the Mattersight GC's position must evaluate "fair use" exceptions BEFORE sending a takedown notice, or be liable for abuse of the DMCA process in damages to the transforming work creator: . . ."[T]he fact remains that fair use is a lawful use of a copyright. Accordingly, in order for a copyright owner to proceed under the DMCA with ‘a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law,’ the owner must evaluate whether the material makes fair use of the copyright.” The court went on to say that “[a]n allegation that a copyright owner acted in bad faith by issuing a takedown notice without proper consideration of the fair use doctrine thus is sufficient to state a misrepresentation claim pursuant to Section 512(f) of the DMCA. . . ." Lenz v. Universal Music Corp. (Case Number C 07-3783 JF, U.S. Dist. Ct., N.D. CA 2008). On a pixel-by-pixel analysis, now -- my final image contains less than 10 percent of the original's pixel-values. That is plainly fair use, and/or a parody. And so, this posting will serve as the extra-judicial counter-notice to Mattersight's GC (in addition to the phone messages I've left for her) that the very able Judge Fogel contemplated when he granted Mrs. Lenz partial summary judgment against Universal Music, back in February 2010 (a 17 page PDF file -- see pages 14 and 15). As to any additional DMCA Takedown Notices sent to any other ISP for this same content, the Mattersight GC is now "on notice" that it may constitute a bad-faith abuse of the process, to thwart my "fair use" -- and my protected parodies. To complete the record, here, then -- I'll post the text of Mattersight's takedown notice under the DMCA, in green below -- as well as a mini-image of the banner, complained about, as it stood last Thursady. It was, in fact, only one of seven banners that would appear randomly, under the theme I was using on Wordpress. So, a reader only had a one-in-seven chance of even seeing it. Yet, the hired gun felt it was an unfair use of a barely bigger than thumbnail size copyrighted image of the CEO. So be it. It will remain here on blogger. And there are already accounts open on other hosts, should this one be made the subject of bogus "takedown" attempt. Information. Just. Wants. To. Be. Free.

Location of copyrighted work (where your original material is located): www.mattersight.com www.eloyalty.com First Name: Christine Last Name: Carsen Company Name: Mattersight Corporation Address Line 1: 200 S. Wacker Drive Address Line 2: Suite 820 City: Chicago State/Region/Province: Il Zip/Postal Code: 60606 Country: USA Copyright holder you represent (if other than yourself): Mattersight Corporation Please describe the copyrighted work so that it may be easily identified: http://mattersightfail.files.wordpress.com/2012/04/matterhead6-2012.jpg The picture is found here on the blog: http://mattersightfail.wordpress.com/about/, with a smaller version found here: http://mattersightfail.wordpress.com/, incorporated into the April 13th blog entry. Location (URL) of the unauthorized material on a WordPress.com site (NOT simply the primary URL of the site - example.wordpress.com; you must provide the full and exact permalink of the post, page, or image where the content appears, one per line): http://mattersightfail.wordpress.com/ If the infringement described above is represented by a third-party link to a downloadable file (e.g. http://rapidshare.com/files/...), please provide the URL of the file (one per line):N/A I have a good faith belief that use of the copyrighted materials described above as allegedly infringing is not authorized by the copyright owner, its agent, or the law.: Yes I swear, under penalty of perjury, that the information in the notification is accurate and that I am the copyright owner or am authorized to act on behalf of the owner of an exclusive right that is allegedly infringed.: Yes Signed on this date of (today's date, MM/DD/YYYY): 04/15/12 Signature (your digital signature is legally binding): Christine R. Carsen, General Counsel. . . .

Whatever else may be said about the above, it is a certainty that the latest banner has so transformed the original, as to no longer be infringing. I actually think the pre-Dracula-ized version would have been better for Mr. Conway's reputation -- but his lawyer insisted, so. . . I had to respond with a plainly-protected-parody transformation. Ah -- irony! -- that's for me! Here endeth the lesson in copyright law in the United States.

Proof That New EU Privacy Directive Conflicts With Mattersight's Business Model -- From Mattersight, Itself

I've finally been able to directly download public domain .TIFF images -- from the USPTO.gov site -- of the two US patents Mattersight was granted on its business methods. As I've said earlier, these patents are of scant value, in terms of being able to actually preclude competitors from providing similar call analysis services to Fortune 500 clients. [See this post, and this post, for more on that.]

The patent page images are very useful, however, for clearly explaining what it is that Mattersight does, in terms of call-recording, to operate its business. And it is clearer than ever, now that the new EU Privacy Directives will -- in my opinion -- make Mattersight's core business line unworkable in the EU Member-States. Click to enlarge:



Note that each of the highlighted steps in Mattersight's business model will require the "disengagement" of already-collected and analyzed customer data -- if any EU Memeber State citizen decides to opt out of the data, and exercises his or her right to be "forgotten" and "erased" from the Mattersight databases.

That makes for a real problem, in any drive by Mr. Conway, et al., to grow Mattersight's behavioural analytics offering in the EU, proper. And so, Mattersight may be more than fully-valued at $9 per share (current NASDAQ-quoted price), in my opinion.

Do stay tuned.

This Will Be The Back-up Site. . .

This will be the fail-safe, if what happened at the Wordpress.com address should happen here.

Currently, though, this links to the main site.

Carry on.

Less Than 10 Percent Of The Eligible Series B Preferred Shares Were Tendered -- At $8.60 -- Why?

This evening, Mattersight announced the results of the partial tender offer it ran for the 7% Series B Preferred. That tender expired last Friday evening -- not with a bang, but with a whimper. Fewer than 20,000 of the 111,000 or so eligible Series B Preferred Shares were tendered, according to Mattersight's SEC-filed report, closing out its previously-filed Schedule TO.

The under 20,000 shares of Series B tendered, in turn, represents just about 1 percent of all the still-outstanding Series B, which converts one-for-one into common, now. [I'll be back tomorrow, with some thoughts on whether this earler surmise of mine -- played any part in that.]

To be fair -- at least at first blush -- I think the anemic response had far more to do with the notion (if you believe the Mattersight common is stable at this price level) that holding the Series B is tantamount to earning a 7% running dividend on the Mattersight common, as Series B converts one-for-one into the common at any time, and it is even entitled to much the same voting rights, generally, as the common.

No, I think at least some traders on last Thursday (after 10 AM -- see the chart here), woke up to the idea that since Mattersight common has never paid a dime of dividends, one could hold/acquire the Series B, and clip 7% -- as a pretty decent return.

Or perhaps in a less-charitable vein, most savvy B holders realized that Mattersight was underpricing them. If the common was trading above $8.71 last week with no dividend (as it was) -- why should the Series B, with a 7% coupon -- be worht less than the common, if tendered? It shouldn't.

It could be argued that Mattersight was looking to grab some of the B back "on the cheap," here. Only a few took the suckers' bet, it seems.

As I say -- more after I've been able to sleep on it.

Truth-Telling "MATTERS"!

On Mattersight.com's investors' community section of its corporate website, under a tab called "Stock Quotes", it provides some stock trading lookup tools. That tool generated the stock price graph from 2000 to present which appeared in my last post.

When I went to create a five year chart, Mattersight offered me the option of adding "event" markers to the chart, to help me interpret its NASDAQ common stock price movements. One of those event tags is "Earnings" -- so you know I HAD to select that particular overlay(!).

Below are the results, followed by my correction thereto -- to restate the chart for the fact that each arrow is upside down (click the chart to enlarge it). More importantly, my corrections explain the notion that decreasing loss-levels are not equal -- in any sense of the GAAP term -- to increases in GAAP earnings.







In sum, I think the entire Mattersight-generated chart is egregiously and materially misleading. Do see below -- but in my experienced eye, it reflects a cultural problem at the company. And I think the culture of fast and loose with financial truths starts at the top. The CEO is a CPA afterall. In short, he knows better.

There is no indication that I could find that would let the visitor know the chart does not refer to any GAAP measure, of any sort. In fact, there are no footnotes at all to the chart. That's troubling.

Someone ought to show the SEC's Corporate Finance, Disclosure Policy and Market Regulations staffers this chart -- scratch that -- maybe I will just forward it on, later today, by secure e-mail.

So It Begins -- Again!

Kelly Conway, the CEO of Mattersight, is a CPA.

Mattersight is a public company. Sarbanes-Oxley applies to it, as does Dodd-Frank.

This blog is commentary on what I see as a lack of oversight and balanced governance -- at Mattersight (and before it, at eLoyalty -- both of which Mr. Conway has led, since inception). This lack is both at the CEO-, and board- levels, in my view. Here is Exhibit A. [To be posted later this evening, if Wordpress.com cannot reinstate this blog, over there.]

Q1 Results Conference Call -- 5 PM EDT On May 10, 2012

Mattersight today announced that it will hold the regular Q1 results call, and slide presentation, about five days later than usual. You may access the call through the investors section of Mattersight's corporate website, after market-close on May 10, 2012. As was the case for the last 54 or so previous quarters, I don't expect to see a net profit from operations, on a GAAP basis, consistently applied.

I could be shocked, though. I could be wrong. This might be the first quarter in the history of eLoyalty -- and now Mattersight -- in which significant GAAP earnings per share have been generated.

If so, I'll be the first to cheer, should that oh-so unlikely event occur. I personally doubt it, though.

I'll set my calendar, in my phone, for a reminder -- and will report here on the evening of May 10, 2012.

Of The EU Right To Erasure. . . Of Prior Collected Data

As a follow-up to my last post, I'll note that -- as written -- the new law would require that Mattersight remove the data from its database as to each EU member-state citizen who revokes his/her consent to be included -- and Mattersight likely must do so, retroactively.

That is, the EU member-state citizen may ask for his or her data to be forgotten, and cleansed from the databases. That, in turn, would be the likely death-knell for the data that Mattersight has already processed -- and sold to client(s).

See Article 17:

. . .Article 17 Right to be forgotten and to erasure

1. The data subject shall have the right to obtain from the controller the erasure of personal data relating to them and the abstention from further dissemination of such data, especially in relation to personal data which are made available by the data subject while he or she was a child, where one of the following grounds applies:

(a) the data are no longer necessary in relation to the purposes for which they were collected or otherwise processed;

(b) the data subject withdraws consent on which the processing is based according to point (a) of Article 6(1), or when the storage period consented to has expired, and where there is no other legal ground for the processing of the data;

(c) the data subject objects to the processing of personal data pursuant to Article 19. . . .

So, as I say, I doubt Mattersight will be able to do much on the continent if this law stands as written.

Will The New EU Privacy Directives Spell The End Of Mattersight's Emerging EU Business Model?

In early 2012, the European Commission published draft legislation to establish a single, unified pan-European data protection standard, for all of the EU member jurisdictions. The proposed legislation includes a General Data Protection Regulation applicable in all member states, and thus replaces the patchwork of different data protection laws currently in force throughout the EU. Of primary importance at the moment is the UK, for Mattersight. 

But longer term, it will likely be tough to aggressively grow the Mattersight offerings inside the EU, generally. Why? Because the business model relies, as raw material, on the recordings of customer interactions over the telephone. The stringent procedures for an EU customer "opt-in" -- to allow such recordings of EU member states' citizens -- may effectively mean that only a very small proporion of such customer interactions will lawfully be available for Mattersight analysis. You may read the full test of the new EU privacy law here (a PDF file).

So -- I'd be rather skeptical about any Mattersight plan to grow beyond England. The new General Data Protection Regulation by its terms applies to all foreign companies processing data of EU residents (and that clearly includes Mr. Conway's company). In addition, the new law creates a two percent of annual global sales penalty for breaches/violations. Moreover, as a general rule, any processing of recorded telephone data will require a prior specific written notice to, and written informed consent from concerned EU individuals, for the processing of their data (other than in very limited exceptional cases, which would not seem to apply to Mattersight's business circumstances).

Of course, it all could change, in the coming months -- but for now, it doesn't look very good for Mattersight's recording of customer phone conversations, and then re-using the sliced and diced data to drive the behavioural analytics stuff it does with it, for the seller/client of Mattersight. At least this is true, under the current US-based, relatiely vague scheme under which Mattersight's business is presently-operated in the US and Canada. It is no defense under the new EU law, by the way, for a US company to say that it relied on its EU client to be sure that the data collected was compliant with EU processes when collected (as well as secured from hacking) -- and that alone could cost Mr. Conway up to two percent of his worldwide sales, for each serious breach/violation. Wow. 

As ever, we shall see. [Perhaps immodestly, I am quite pleased with how my graphic for this story turned out. Do click (at upper right) to enlarge it. Cheers!]

This Is Mattersight's Unvarnished -- But Completely Truthful Story -- Stripped Of CEO Puffery

It comes from the top of page 5 of Mattersight's most recently-filed SEC Form 10-K:

". . .We have not realized an operating profit in [Ed. Note: THIRTEEN] eleven years and there is no guarantee that we will realize an operating profit in the foreseeable future. 

As of December 31, 2011, we had an accumulated deficit of $185.8 million. We expect to continue to use cash and incur operating expenses to support our growth, including costs associated with recruiting, training, and managing our sales force, costs to develop and acquire new technology, and promotional costs associated with reaching new clients. These investments, which typically are made in advance of revenue, may not yield increased revenue to offset these expenses. As a result of these factors, our future revenue and income potential is uncertain. . . ."

That's simply. . . crazy. Who runs a company for 13 years, shifting business lines, starting new businesses, exiting others, spinning others off. . . without ever once bothering to record a full year of net earnings per share, after taxes?

This isn't some R&D burdened biotech, banking on one pivotal FDA approval -- no, these businesses were fully-formed (at the revenue line) when they were spun-off in 2000. It simply seems that Mr. Conway cannot bring his expense-lines in beneath whatever revenue he generates -- for nearly 150 straight months, now.

 Mind-boggling.

Will The Mattersight Series B $8.60 Tender Offer Expire Tonight?

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.

Oops! It Seems I've Underestimated Mr. Conway's Cash Haul. . .

And badly so. Earlier this week, I had guessed that Mr. Conway took in about $7 million in cash from 1999 to 2012. I was wrong -- both on amount, and on the time periods. In fact, his cash haul for that period ('99 to '12) -- according to the SEC-filed Forms 10-K and proxy statements -- was over $10.403 million.

From just 2000 to 2011 (or the period that the public has held shares in the companies he leads), his cash compensation (including various forgiven cash loans made to him, footnoted in the Y2K proxy) was over $8.463 million.

Mind you -- this is only the cash paid. If I were to conservatively estimate the equity values (stock options and restricted stock grants) he's also received, over these same periods (using traditional Black-Scholes models), the figure would easily be triple that -- or over $25 million to $35 million.

And that, my friends, is one princely sum for someone who has never turned in one dime of annual GAAP earnings per share -- ever. . . going on 13 years, now.

[Unrelated note: it seems that the Series B tender offer will expire tonight -- no SEC-filed extending amendment on Schedule TO-A.] 

It Sure Looks Like Someone's Been Trading On Advance Information -- In The Series B Tender Offer

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.

Still More, On The Limited Value Of Business Method Patents

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.

CEO Conway Trumpeted Two Patents Yesterday. . . Yawn

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.

Mattersight's Partial Tender For Its 7% Preferred Expires -- Unless Extended -- This Friday

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.

But if you wait until year end 2012, you can turn it in for a full year's worth of 7% accrued but unpaid interest payments, and that's some nice cheddar in this choppy market. And it still converts, one for one, into common -- and the common has never paid a dividend.

You may also write Mattersight. . .

. . . at ir@mattersight.com.

Feel free to join the aprty, here. Information just wants to be free.

So It Begins. . .

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.

Honestly, 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 Mattersightreviewed.blogspot.com. Yeh -- that's the ticket.