If you’re curious as to whether the IP Market is trending up or down, you can use vector-based analysis on a series of indicators (as we did in our previous column) or you can simply follow the money. One may ask the question, “is the flow of money coming in, directly or indirectly, to make acquiring and asserting enforceable patents easier?” On these two counts, the trends are definitely positive. First, as one of the leading brokerage firms internationally, we have a unique vantage point and are regularly contacted by new buyers who were not even in this market a year ago. Those newcomers have specific needs and are ready to pay cash for the right assets. Yes, you heard that right: cash! Others are former veterans of established publicly traded IP companies (PIPCOs) who are reinventing themselves under new entities and without the shackles of legacy. Either way, most are now NPEs, which makes the willingness to pay a cash component all the more refreshing and points to a risk analysis that is more optimistic than years’ past where litigants had to keep all their powder for the litigation.
Another interesting and no less important development is the increasing ease with which one can obtain financing for a patent assertion campaign (and at much better terms than the previous number of years).
Historically, litigation-backed financing firms have required a 2X-3X multiple for every dollar invested in a campaign, with the first dollars of revenue returning to the financer. In addition to the previous, many times they also received an additional coupon (interest) on any recoveries above and beyond their already very generous return. Those days seem to be (mostly) gone, with the arrival of several smaller entities flush with cash who are willing to finance the right cases at a much lower cost to the borrowers (which may be either the patent owners or the law firms representing them). Actually, this has become quite a cottage industry, to a point where 175 people congregated to NYC earlier this week in what was the first iteration of the Litigation Finance Dealmakers Forum.
In a sense, the latter phenomenon explains the former; if you can secure financing at much lower rates, you can afford to pay inventors and other patent owners upfront or through some hybrid deal structure that is not exclusively back ended, as was the case in the past 3-5 years. For me, these metrics suggest there is significantly more liquidity out there to enforce good patents. This in turn should convince infringers that the “scorched earth” approach may not be as effective moving forward if the other side is still standing strong after a long battle. In my view, any factor that will bring people to the table and accelerate the transactability of this asset class should be welcome.
A couple of months ago, I wrote a more philosophical piece called “the Soul of Patents” that generated quite a few comments (mostly positive, I must say). I brought our readers’ attention to the fact that innovation, if left unchecked, can become like anything else, a source of evil or abuse. One example of this is an Amazon patent describing how to put workers in cages over robots. See figure below.
Well, you will be relieved to read that an Amazon executive recently admitted that putting employees in cages upright all day long while they are being driven by robots was “a bad idea” after all. I just hope for Amazon the person behind that patent is not the same one choosing the location of HQ2…
On the other hand, one can only cringe at seeing that Purdue, the pharmaceutical company responsible for flooding the United States with the highly addictive painkiller OxyContin, has now patented a new drug to treat opioid addiction… Really? For most people, this will be another good reason to look at alternative treatments for pain management. The leading one is cannabis. Which brings us to this interesting question: should pot be patented? With the rise of cannabis (both medical and recreational) as a multibillion dollar industry, there is a now a race to the patent office and it appears the pot patent war has already started…
Buyers & Sellers:
Historically, we have noticed that most of patent transactions we successfully brokered took place in either Q1 or Q4 of the year. Nothing like year-end to act as a forcing function before the budgeted dollars turn into pumpkins. Use them or lose them, right? In many cases, a signed agreement is sufficient to book the expense in a given year even if the actual closing happens in January. Accordingly, Q2 is often a soft quarter and this year was no exception in the industry with IAM magazine reporting that the number of transactions in Q2 was actually the lowest in two years. Among the top buyers, Longitude Licensing, which was acquired by Vector Capital in 2016 (who owns IPValue), acquired a slice of patents from Seiko, while RPX led the number of deals – acquiring 101 assets in five separate transactions. I suspect this number to be much higher for RPX, as they have largely moved away from acquiring assets outright and mostly take on membership-wide licenses these days. Top sellers were Intellectual Ventures and Panasonic. No surprise there as this continues an established trend. More surprisingly though, companies such as GE and Shell are now making assets available for sale, and Google reported its first sale on the secondary market, unloading lithium battery assets it had acquired from Motorola in 2012.
IAM also reported that operating companies accounted for 76% of the sales and NPEs for about 17% while the bulk (roughly 2/3) of the assets transacted were related to the 4 following areas: industrial (434), communication (393), electronics (365) and semiconductor (270).
Advanced Interconnect Systems Ltd., an Irish patent holding company, was the top patent buyer from April to June, ROL data shows. The company purchased 233 U.S. and foreign patents, including digital imaging patents, from Seiko Epson Corp., the Japanese electronics maker, that sold the most patents in the second quarter, ROL data and patent office records show.
According to Bloomberg Law, below were the most active buyers and sellers for Q2:
More recently, it was also reported that Huawei unloaded hundreds of assets to Qualcomm.
Winners & Losers:
Another successful day in court for NPE Finjan, which seems to have found the winning formula among many beleaguered NPEs. Similar good news for Parker Vision who announced that the Federal Circuit issued its decision affirming the lower court PTAB 2017 ruling that certain method claims of Parker Vision’s were not proven by Qualcomm to be un-patentable. This sets them up for a much stronger case during the next chapter in court. On the other end of the spectrum, shareholders of Walker Innovation (a subsidiary of NPE Walker Digital) approved the liquidation and dissolution of the company.
We often talk about the parties doing the deal, but rarely about those supporting them. Well, a recent study showed that the market for IP service providers is vibrant and some of these companies are fetching, in some cases, unicorn-like valuations. Just last year, CPA Global (which had only 12M in sales in 2015 and no profit) was sold to private equity firm Leonard Green & Partners for over 3.1B USD! No wonder these firms are multiplying. And with the advances in AI in patent analytics, these providers should be able to operate with a much smaller workforce than what has been historically the case.
The NFL season just started and although hits to the helmets are no longer allowed on the field, they still area in court as Ridell found after it unsuccessfully tried to invalidate a rival’s helmet design patent.
On a more serious note and another blow to basic medical research, the Federal Circuit ruled that Acorda’s patent for a multiple sclerosis treatment was invalid. While we all understand the role played by generic drugs in order to bring costs down over time, how can there be generics if there is no original patented drug left to copy?
There were just a few licensing deals announced publicly these past weeks. Monkey Media reported having licensed its video family of patents to Samsung. Sadly, this came only after a long protracted legal battle. RPX Corp., the defensive aggregator now owned by private equity firm HGGC, said it has completed a patent licensing agreement with Realtime Data LLC for an undisclosed sum. There are obviously many other deals that were not reported. If you were involved in one of them, please share what you can with me.
I’ll See You in Court:
The PTAB is still the forum of choice for those on the receiving end of a patent assertion law suit and Inter Partes Review petitions are still filed in large volume. The latest included petitions against two NPEs controlled by Fortress Investment Group, INVT SPE and Uniloc. The PTAB also instituted trial in August for IPRs against Uniloc, and in an IPR against an NPE controlled by Brian Yates (of iPEL) and it issued final decisions in August for IPRs against Uniloc, Empire IP, and Quarterhill.
IP Edge (through subsidiary Comtech), launched a new litigation campaign against Black, Dialogic, Digi International, Synaptics and Westermo Data over enterprise-grade networking and/or communications products. These patents were acquired from Panasonic. Therefore, anyone who says there is a fundamental distinction between operating companies and NPEs when it comes to monetizing patents should pause and reflect on the fact that most Fortune 500 companies have resorted to this “privateering” model in years past. In that regard, the recent lawsuit from Facebook against Blackberry is even more interesting as it is reported that Facebook acquired 5 of the 6 patents it is now asserting from various third parties and it is doubtful that it is practicing those itself. Certain people have asked whether this makes FB a patent troll…
There was also some unusual activity in the semi conductor space when Seoul Semiconductor filed an infringement lawsuit against retailer chain Fry’s Electronics.
Our newsletter focuses on the major decisions that may impact IP market trends. Nothing major on this front lately. We are still seeing many decisions from the PTAB invalidating patents being overturned by the Federal Circuit. But just when one would think the Court finally decided to bring clarity over the Alice doctrine, a few head scratching decisions fall on the wire that perpetuate the ambiguity as to what exactly is patentable subject matter. Kicking the can down to trial as the court did in Berkheimer does not really resolve the issue.
On the Legislative Front:
The much maligned PTAB was in the hot seat again when a study by the law firm Robins Kaplan revealed that large technology companies file a high percentage of duplicative IPRs against the same patent owners, in what looks like a war of attrition strategy. The study exposed Microsoft as the top abuser with 59% of its IPRs found to be duplicative. Apple was second with 56% of its IPRs duplicative, followed by Samsung, Google, and LG at 38%, 38%, and 34% duplicative petitions, respectively. Putting a limit of one IPR per patent seems like an easy and logical fix. Director Iancu, I hope you are reading this. New rules are needed at the PTAB to help restore some faith in the system. They should have been included in the latest set of USPTO/PTAB Standard Operating Procedures that was released earlier this week.
Yet another bill was filed in Congress, by House Representative Dana Rohrabacher. The “Inventor Protection Act” aims to create a special exception for “inventor owned patents”, i.e. those never assigned to a corporation or sold to a third party, whereby the inventor/owner could bypass a challenge at the PTAB. This is a variation on the “sovereign immunity” theme that native Tribes and Universities have been raising recently to avoid the PTAB, except that this one would be a pure creation of Congress. While well intentioned towards inventors, I have cautioned in the past against any new legislation that attempts to tie patent ownership to inventorship, as it conflicts with the very attribute of a freely transactable property right that patents ought to have regardless of who owns them at a given time.
Meanwhile, the House Judiciary Committee advanced a bill that would extend by 8 years the ability of the USPTO to set fees for patent related filings.
On the Move:
Cory Van Arsdale, chief revenue office at Intellectual Ventures and a key contributor at IV since 2010, is leaving the giant NPE. He will be succeeded by Mathen Ganesan, executive vice president of the Invention Investment Funds. Cory is a former colleague of mine at Microsoft and a classy and talented guy. Best of luck Cory. Another large NPE, another departure; Acacia terminated President Robert Stewart, effective September 7, 2018. He joins fellow Acacia alums Clifford Press, Al Tobia, Paul Falzone, Fred A. de Boom, Joseph E. Davis and James F. Sanders who all left Acacia in recent weeks. Acacia also announced the re-hiring of Marc Booth, this time as its new Chief IP Officer and new board member. Never a dull moment!