CONCERNS are being raised that a patent issued to private company EDGAR Online Inc. (NASDAQ: EDGR) will restrict investors’ access to tools that enable them to quickly analyze company financial information in the regulatory mandated eXtensible Business Reporting Language (XBRL).
The patent issued January 25 covers the rendering of machine-readable XBRL data in any spreadsheet format, including Microsoft’s Excel, which is currently the most common way that investors are able to benefit from the promised improved usability of XBRL-tagged financial statements.
In December 2008, the US Securities and Exchange Commission (SEC) approved a new rule requiring all companies to begin tagging their financial reports in XBRL under a 3-year staggered roll-out, promising that the format would revolutionize how investors access financial information. More than 8,700 companies are expected to file XBRL-tagged reports for the first time this year.
Even SEC’s EDGAR Database Covered
However, industry observers now fear that if EDGAR Online chooses to enforce its new patent rights, it could hamper investors’ adoption of the new financial format just as it is poised to reach critical mass. Investors wanting to benefit from the true potential of XBRL may be forced to use EDGAR Online’s proprietary I-Metrix product, the cost of which is available by request only between $2,400 to $4,800.
Meanwhile, companies wanting to provide XBRL in spreadsheets on their websites as a convenience to their investors, or even the SEC’s EDGAR database itself, which currently provides Excel downloads as an option for rendering XBRL data, could be prevented or at least restricted in how they do so.
EDGAR Online spokesman Steve Levine told IR Web Report: “Excel is a key tool in the analysis of financial data and we expect many applications will render and analyze XBRL data for IR purposes. Therefore, our patent may cover certain aspects of use of XBRL in spreadsheets in this manner.
“The primary SEC rendering of XBRL data in the EDGAR database is into HTML, however there are facilities to export to Excel. If the method of rendering is based on converting the HTML to Excel, that is not covered by the patent.”
Of course, what he doesn’t say is that if the SEC or anyone else wants to use a spreadsheet to import XBRL data directly, EDGAR Online’s patent may indeed apply. He also doesn’t say that HTML imported into a spreadsheet has none of the added functionality of XBRL data.
I emailed the SEC for information on how they are currently rendering XBRL in spreadsheets on EDGAR and they did not respond by post time.
XBRL: Proprietary Revenue Spinner
From a competitive standpoint, industry observers point to Denver, Colorado-based Rivet Software, a leading provider of XBRL tools, as potentially being most impacted by EDGAR Online’s patent.
However, in an emailed statement, Rivet said:
“We don’t feel this patent infringes at all on how XBRL data is gathered by Rivet’s Crossfire Analytics, which is protected by patent #7,822,769 (Analysis of financial and business information based on interactive data) which was approved on October 26, 2010. Rivet developed Crossfire Analytics years ago in anticipation of the demand XBRL data would generate. We’re enthusiastic that others are also recognizing the value this information offers and look forward to expanding our leadership from XBRL data creation to XBRL data consumption and analytics.”
So they have a patent, too, and it can work both ways….
All of this, however, leaves investors at the mercy of vendors who have turned a regulator’s endorsement of a specific technology, the ownership of which is itself in doubt, into something of a proprietary revenue spinner.
Meanwhile, investors have yet to see benefits from the mandate, and now might be limited in their options if the growing list of patents discourages other software developers to enter the XBRL field.
“I am a bit concerned at the possibility that EDGAR Online might use this to stifle further development of XBRL consumption and use tools, and by doing so damage the actual uptake of XBRL,” said Anne Leslie-Bini, an international XBRL consultant based in Paris, France. “That said, I dare to remain confident that EDGAR Online, knowing the importance of a vibrant XBRL ecosphere, will look for opportunities to make this rendering technology widely available.”
Of course, being a listed company with shareholders, EDGAR Online is understandably acting to protect its intellectual property for the benefit of its shareholders. One of them, Miles P. Jennings, Jr., writes on Seeking Alpha that EDGAR Online has another patent application with potentially far-reaching consequences.
It is for a “Method For Searching Data Elements on the Web Using a Conceptual Metadata and Contextual Metadata Search Engine,” which essentially will make it possible for investors to simultaneously search the web for specific elements in companies’ financial statements and bring that information back into their analysis software.
This is what’s known as semantic search, and after social search, it’s seen as the future of the web search industry. However, that too could be a long time coming if patents discourage the big search companies like Google and Microsoft from offering it to investors.
From a public policy perspective, patent activity such as this by vendors could impact regulators’ willingness to endorse XBRL for future uses. They may instead look for other technology options that can benefit investors while avoiding narrow proprietary interests.