To start us off and in case you missed it, last week, we reported yet another successfully brokered deal with a voluntary licensee. Second, we were recently retained by the prestigious National Research Council of Canada to advise them on their overall intellectual property practices and strategy. Third, we have similarly been retained by the Aluminum Association of Canada and AluQuebec as they embark on devising the future of clean and sustainable aluminum production. Finally, we have been informed that Innovation, Science and Economic Development Canada (ISED) has now launched the selection process for a new patent collective. As a native Canadian, I must say it is great to see a number of Canadian institutions and organizations alike finally placing a higher value on IP after historically treating IP as a mere afterthought.
To keep with the new tradition in the US, this State of the Union column comes a little later than I expected, but Nancy Pelosi had nothing to do with it. 😊 I was actually waiting for some really interesting data, which I received a few days ago. For context, Tangible IP recently participated in the very first and most comprehensive, cross-company survey of real patent transaction pricing, organized by Richardson Oliver Insights. Over 20 industry participants shared details of all their patent transactions for 2015-2018 and the results, covering more than 350 deals and over half a billion of dollars, were aggregated in order to extract the average market price for patents sold either directly or in the secondary market. Although the final numbers are all confidential, the image below shows you a little of what’s in the 40 page report. In short, the report indicates that prices for brokered patents are higher than those for auctioned patents (like IP3), there is a clear price premium for EOUs, and that overall, the market is robust.
The prices are generally in line with the previous ROL report that we discussed a few months back, which did not have access to this complete set of data. It is also noteworthy that the typical gap between the asking price and the actual sale is also in line with their reported numbers 30-35%. For such an illiquid market with so few reported transactions, this is actually quite small and reflects in my view that most actors involved in these transactions are fairly attuned to current market conditions. Most inventors are not unfortunately, and it is important that we, as an industry, track these numbers in order to avoid major disillusion down the road.
A few important caveats should be made here: first, most patents in circulation will never sell; the prices referred here only apply to this very rare breed (probably 1% or less) of patents that will ever be transacted in a discrete transaction (i.e. not as part of a M&A deal). Inventors should not take away that their patents justify this kind of valuation, let alone a higher one. Second, and although the reference point here is to US patents, our daily interactions with buyers suggest that there is a substantial premium paid these days on patents portfolios that contain a Chinese or German counterpart, ideally both (a UK patent for Standard Essential Patents [SEP] is also quite coveted). We actually have several buyers who will not make an offer unless there is such a foreign asset in the portfolio. You should keep this in mind when defining your international patent filing strategy… and budget.
Based on the report, a typical transaction aligns pretty well with their public reporting of about 10 assets (or 3 families) and, as should be expected, patents with evidence of use (EoU) – meaning they appear to be infringed – command a very significant premium over assets that are not practiced by the industry, especially in the brokered market. This is what I often refer to as the “assertion value” of a patent which is ultimately the only valid yardstick these days to predict that a certain asset might sell.
Typical sales took less time than what we normally see, but we think this is because buyers report a shorter time for a deal being on the market and we don’t know what the ratio to buying to selling was. We’d like to see more about how long deals really are on the market. Also, this is probably on the low side as a large percentage of the transactions in this study were “direct” deals (meaning the seller directly contacted the buyer, or vice versa, which shortens the sale cycle significantly). Brokered deals generally take much longer to close in our experience. Another interesting data point; despite all the noise about Alice, software patents are still the ones that warrant the highest market price compared to other technology areas.
While we were the only exclusive brokerage firm selected in the study given the number of transactions we closed, I am not at liberty to share additional details out of respect because of the confidential material in this report. Let’s just hope that more companies and intermediaries will see value in the future having access to a more objective set of data that reflects actual transactions.
So, where does this leave us in terms of market trends? If I based my answer on our specific experiences these days, the fact that we are getting increasingly more requests by operating companies to take on a voluntary license on a portfolio we are trying to sell, tells me that while these companies do not really see much value in owning the patents (arguably because they have no intention to assert those against anyone else and they don’t want to pay for maintenance fees), they do recognize that the winds are changing and that the legal environment is no longer one sided in their favor as it has been for the past several years (a great article I stumbled upon a few days ago points to the same analysis). Thus, as the legal risk grows, so does the willingness for potential infringers to take an early (and generally cheaper) license before they find themselves on the receiving end of a law suit. Remember, there are three main sources of motivation for people: greed, fear and love. We are possibly starting to see a little more fear making a comeback in the patent world…
Buyers & Sellers:
This past month turned out to be a busy one as new transactions go, with the caveat that most of these deals likely closed in late 2018 and assignments were recorded more recently.
Let’s start with the news that Brevet Capital, a leading specialty finance provider has acquired well known NPE PanOptis, comprised of Optis Wireless Technology, Optis Cellular Technology, and Unwired Planet. To my knowledge, we had not seen a P&E entity buy a large NPE since Ottawa-based Conversant (formerly MOSAID) was sold to Sterling partners in 2011.
Qualcomm, which has its own set of problems dealing with an industry wide push back on its licensing practices and antitrust complaints in several jurisdictions, divested its wireless charging business (dubbed Qualcomm Halo) along with 1,500 different wireless charging patents and patent applications, to a rival MIT technology startup, WiTricity. We also saw beleaguered Intellectual Ventures (IV) continue to offset more patents, this time to a few operating companies (such as Facebook, Seagate, and TiVo (Rovi)) as well as various NPEs.
Chinese handset manufacturer Oppo continued its buying spree by acquiring a small portfolio from defunct South Korean mobile maker Pantech which is trying to reduce its $100M of debt.
Defensive aggregator Allied Security Trust (AST) announced the results of its third IP3 purchase program by indicating that a coalition of companies, including Verizon, Google and Uber had collectively spent $3 million to buy patents averaging US $99,000 per patent family, which is 2.4 times lower than the average price reported in the study above. AST’s big brother RPX announced for its part that it had directly acquired the remaining patent portfolio of a Creative subsidiary for a reported $17.5M to end all current litigation involving its members.
Caught in a tight race to the IPO finish line with rival Uber, ridesharing company Lyft acquired a set of patents from US carrier AT&T, who has been divesting its large portfolio at an accelerated pace lately. Samsung is another company that does not shy away from selling some of its IP assets as per recent transactions to the likes of Nokia, TiVo and Philips to name a few.
Wacom, the Japanese maker of high-end tablets and styluses has apparently acquired more patents amidst new US litigation and a push to reach more consumers.
Finally, a year after acquiring the Technicolor’s patent licensing business and portfolio, Interdigital followed suit and made a binding offer to buy its Research & Innovation unit as well.
Winners & Losers:
One of the biggest winner lately was undoubtedly the US Patent System, which made a huge comeback by jumping back to tie second place after falling 11th last year in the latest International IP Index released by the U.S. Chamber of Commerce’s Global Innovation Policy Center (GIPC), which covers all facets of intellectual property protection, not just patents.
Intellectual Ventures had a rare win recently when the court established that it is owed $34M by T-Mobile and another $9M by Ericsson after a jury returned its verdict. It will be interesting to see if and how much of this award survives appeal.
Apple had a good month in court as it was able to narrow the scope of the damages that Qualcomm can seek against it in their never ending battle. In a rare move, the Cupertino giant also went on the offensive against an NPE, filing a pre-emptive lawsuit against Fundamental Innovation Systems International (FISI) in order to get a California court to declare that Apple is in fact not infringing on any of the patents held by FISI. This is unusual as most companies usually wait until they are being sued and then filed an Inter Partes challenge in front of the PTAB. It will be interesting to see if this is an isolated case or rather presages of a new trend if IPRs are losing some of their original luster under the new USPTO rules.
Patent owners in general and particularly those in the life science space may have just received a most welcome gift from the Federal Circuit. The court issued a precedential decision in Supernus Pharmaceuticals v Iancu where it adopted a more generous view about patent terms extensions (PTE). When one knows that each day of patent term can be worth as much as $50M for a blockbuster drug, this decision will no doubt feel like a shot in the arm for big pharma.
I’ll See you in Court:
As usual, there was a flurry of new cases filed in court against alleged infringers. A few stand out: an MIT professors accused Ford Motors of willful infringement regarding proprietary technologies they invented to propel its Eco-Boost fuel-efficient engines.
Dish Network which has blacked out several Univision-run channels after failing to reach a new distribution deal with the programmer, has lobbed a lawsuit at Univision claiming that the Spanish-language broadcaster is infringing a batch of patents tied to adaptive bit-rate streaming.
After 6 years of a protracted patent battle, Portland-based Columbia upped the ante, accusing Seirus Innovative Accessories and its executives of racketeering in a lawsuit that seeks more than $20 million in damages. Meanwhile, Pennsylvania-based NPE Rembrandt which had recently emerged from a long hiatus without any new complaints is filing again after suing Apple over two Bluetooth-related patents.
The new perceived patent environment may also explain why Excalibur IP, which manages the former Yahoo patent portfolio, filed its very first law suit, against US-based Spotify, claiming that the streaming service’s “digital fingerprint” software infringes patents owned by Yahoo.
Finally, an inventor decided to take thing in his own hands as his company Portus Singapore Pte Ltd. has initiated its first litigation campaign as patent owner and exclusive licensee, respectively, suing AT&T, AXP Group and Zmodo Technology. A family of two patents generally related to monitoring and/or controlling devices at a remote location is asserted against each defendant.
Call this a preemptive handshake: While automotive companies are beefing up their patent portfolios around self-driving and connected cards, they appear to have no intention of repeating the patent war they witnessed in the mobile phone area. They seem content to play a defensive game rather than use their innovations to create greater product differentiation.
Meanwhile, giant manufacturing company 3M settled a law suit against California-based touch-screen manufacturer Elo over what it alleged was the infringement of its patents by Elo’s Pro-M products covering metal mesh conductors.
Finally and just in time for golf season, golf manufacturers TaylorMade and PGX announced a settlement of their ongoing patent battle. The whole dispute started because PXG believed that TM’s SpeedFoam was a little too close to PXG’s TPE (thermoplastic elastomer) filing. The parties can now go back to the putting green and let their clubs do the talking.
From the Bench:
On January 22, 2019, the U.S. Supreme Court handed down its decision in Helsinn Healthcare S.A. v. Teva Pharmaceuticals Inc. by stating that a sale of an invention to a third party where the third party is required to keep the invention confidential still places the invention “on sale” under the America Invents Act (AIA), thus potentially barring the ability to patent the invention. This decision is going to help generic drug manufacturers since many pharmaceutical companies have relied on such “secret sales” in the past when debuting the commercialization of a new drug. Also, all inventors and patent owners should be careful to complete their patent filings prior to ANY commercial sales, even if secret. This is a scenario where a first filing a provisional makes sense if time is limited.
In a case that stemmed from another SCOTUS decision last year (Oil States) which determined that patents were a mere “pubic franchise” but did not rule out the argument that invalidating a patent through an IPR could constitute a “taking” under the constitution, Christy, Inc sued the US government on that very basis after losing an IPR. The Federal Circuit just let us know that they did not agree that the invalidation of its duly issued patent was an unconstitutional taking. The Court stated that “Congress has not expressed any intent that patent rights may be the subject of Takings Clause claims. Since patent rights derive wholly from federal law, Congress is free to define those rights . . . as it sees fit.” This one is probably going to the Supreme Court, but do not hold your breath as to SCOTUS doing a 180 degree turn and starting to like patents… The Supreme Court will hear oral arguments in Return Mail, Inc. v. USPS on February 19 and in Mission Product Holdings, Inc. v. Tempnology, LLC on February 20. Stay tuned.
On the Legislative Front:
The only piece good of news coming out of Washington D.C. recently was the “Inventing America” conference on February 12th focusing on “the role that innovation plays in America’s economy and issues which have impacted American inventors in recent years including the Patent Trial and Appeal Board (PTAB), judicial interpretations of Section 101 of U.S. patent law as well as China.” The agenda for that meeting was clearly pro-patentees and the roster of speakers, for once, were not a concentration of silicon valley’s executives complaining about the structural damage to the US economy caused by patent trolls…
For the rest, there is no sign under this highly partisan Congress that any of the bills currently under study will emerge for a vote anytime soon.
Around the World:
While artificial intelligence (AI) patents are all the rage and for those who missed the announcement a few months ago, the European Patent Office (EPO) issued new guidelines for the patentability of AI and machine learning (ML) inventions. Certain entities have now commented that these guidelines create a seemingly insurmountable threshold for patentability of AI and ML inventions.
The UK Court of Appeal has reaffirmed that English courts may hear disputes over standard essential patent (SEP) licensing. In a January 30 opinion, the court held that the UK was the most convenient forum for an ongoing lawsuit filed by Conversant Wireless Licensing S.à.r.l. against Huawei and ZTE over their refusal to take a global license to the NPE’s portfolio based on allegedly fair, reasonable, and non-discriminatory (FRAND) terms.
Canadian courts were busy dealing with patent cases in 2018 and you can read a great summary of all these decisions here. Unfortunately, many commentators have indicated that, taken as a whole, the new compendium of cases is not welcome news for inventors and patent owners.