Day in, day out, we are contacted by inventors who developed some novel contraption or concept for which they received a patent. However, because they focused on one single invention, unsurprisingly, they generally end up with one single patent. It either doesn’t occur to them that more maybe better or they simply cannot afford the additional expense. This situation is compounded by the fact that these patents are rarely written with enforceability in mind. What I mean is they focus on describing the invention when they should rather preempt the designing around thereof. Naturally, they end up with what I call the “curse” of the lonely patent. Why a curse? Very simple; as good as the invention may be, there is simply no market for transacting single patents. We hear this all the time from buyers when looking to possibly acquiring portfolios; “we are not interested in single patent portfolios”. Recent statistics confirm this trend and show that the value of single patents actually fell a whopping 56% from 2017 to 2018, according to the latest Real Pricing Data study we participated in and covered in more detail a few months ago.
The main reason behind this decline is relatively simply; barring a few exceptions, all patents that eventually find a buyer are those that are infringed by at least one third party. I have alluded to this frequently in the past; patents are a negative right (i.e. the right to exclude others) and they only gain in value in the hand of an owner who does not practice the invention itself when someone else does. This means the owner has to enforce the patent to extract revenues. This in turn is either done via licensing negotiations, or more often through litigation, as most infringers simply refuse to pay voluntarily for the right to practice the patent, especially if they just happen to read on those patents without any previous history with the patent owner. In other words, you will likely have to fight to get a return on your investment and very few people want to go to war with a single bullet in their arsenal. This market reality conflicts directly with the natural tendency for most individual inventors to limit themselves to one patent because of the heavy costs involved and the fact that it does not come naturally to ask for a second patent when you just received one. Alas, this a fatal mistake in most cases. At the very least, inventors should keep the patent family alive by filing at least one continuation in the US (and another one once the first one is allowed, and so forth). This leaves open the ability to amend the claims to better match new case law or new infringement scenarios that were not anticipated when the original patent was filed.
Equally important these days is the need to extend the geographic scope of protection internationally. Currently, several buyers will simply not look at portfolios unless there is at least one German or Chinese patent in the family. Luckily it is still possible to obtain an injunction in those countries whereas it is virtually impossible to get one in the US. And one should not minimize the leverage these may provide to the patent owner; many global settlements take place simply because an infringer is being sued in one of these countries. For more details about what makes a patent valuable, please consult our short guide.
We just received the latest numbers on the brokered market, and they reflect an ever-increasing inventory, but not a proportionate increase in sales. According to ROL Insights who track transactions, the first quarter of 2019 showed strong growth in the number of assets brought to the market compared to Q1 of last year, with almost 7300 new assets offered for sale. However, the table below shows that very few of those actually sell (i.e. no assignment), which confirms that the market while trending positively, has yet to eliminate its excess inventory and that the sale cycle is still relatively long.
Our own response to this phenomenon, even for a few of the single patents we have taken on brokerage (arguably in a moment of weakness!) has been to successfully negotiate several individual licenses with interested parties who may not desire to acquire the assets but understand the value of securing defensive rights before a third party buys these very patents and assert against them. We announced some of those earlier this year and we have a few more in the works.
On a positive note, and this should not be discounted, we are starting to see for the first time in years Non Practicing Entities (NPEs) put some real cash upfront to acquire portfolios, reflecting a desire to retain most if not all of the potential upside for themselves. This means that those taking the risks are now feeling more confident about the outcome and do not want to share. A little bit of greed in this context is actually a good thing for inventors who are looking for an immediate influx of cash and have little appetite for playing the long game. It will be interesting to see if the courts prove these aggressive buyers right.
Buyers & Sellers:
Staying on the NPE topic (and because there were very few reported transactions this past month), there were a couple of studies recently that attempted to shed some light on these entities. Entities that are maligned by a very vocal group of large companies (aka the “patent troll” lobby) as being more or less the parasites of the patent system, while being hailed simultaneously by the inventor community as their only viable path to patent monetization.
Stanford University released to the public a massive database that monitored 10 years of NPE litigation. Its main conclusion is that a very diversified group of companies have been historically pigeon-holed under the “troll” label whereas the reality shows in fact the presence of up to 13 different sub categories. The table below illustrates this situation and calls, if anything, for a more nuanced narrative than the traditional name calling.
Source: Stanford University http://npe.law.stanford.edu/
One other study by David Abrams and Gokhan Oz first points to the fact that NPEs are nothing new, and a certain William E. Simonds even wrote a book in 1871 titled “Practical Suggestions on the Sale of Patents” that illustrated the importance of interacting with these “patent brokers.” It then goes on to postulate that NPEs can either be “benign middlemen” by encouraging upstream innovation (as inventors see a monetization path for their patents) or “stick up artists” by discouraging downstream innovation (if other companies fear a future “patent tax” on their own activities). Nothing revolutionary here, but the authors coherently explain why the two sides are so passionate about their own narrative. Their conclusion though is quite interesting and worth quoting: “We find that the overall effect of NPEs on innovation depends crucially on the degree of infringement coming from non-innovating producers (e.g. those producing “me-too” products). If non-innovating producers represent a majority of patent infringement, the net effect of NPEs on innovation is benign. If the majority of infringement comes from innovators, NPEs are discouraging downstream innovation more than they encourage upstream innovation and have a net negative effect.” In other words, if one believes the current issue of “efficient infringement” by large aggregators outweighs the risk that innovative startups may stop innovating by fear of being used by NPEs, one should support their role as the “benign middlemen” of the patent market, and vice-and-versa. Personally, I think the former clearly makes more sense; given the current cost of litigation and the fact that NPEs cannot obtain an injunctive relief, it makes no sense whatsoever for an NPE to sue a company unless its infringing activities attach to a very large amount of sales, which is the realm of the very big companies. Plus, it seems a lot easier to curb potential excess by protecting small companies downstream rather than having a large swath of the population stop innovating in the first place because it has lost faith that the patent system can adequately reward their contributions.
Winners & Losers:
The big news this past month was the momentous settlement after their first day in court between Apple and Qualcomm, which will see Apple write a check for US $4.5 billion to its San Diego nemesis in order to settle owed royalties and other damages. While most have declared Qualcomm the clear winner of this patent war, it was not lost that during the fight where Apple essentially refused to pay Qualcomm money it has agreed to already through a licensing agreement, the chip company had to layoff over 1500 employees, many of whom were later hired by Apple… It was also reported that Apple internally praised Qualcomm’s chip technology while denigrating it publicly and that it even entered into other licensing deals with suppliers of inferior technology in order to bolster their argument that Qualcomm was asking too much for its chipsets.
On the other side of the spectrum, there was a bitter ending for pharma Allergan’s ill faith strategy to use a US native Indian tribe in order to bypass the PTAB’s Inter Partes review process based on the tribe’s alleged sovereignty. After being denied by the PTAB itself and the lower courts, the company appealed to the US Supreme Court who refused to hear the case, dealing it a last blow. It will be interesting to see if US universities (which make the same argument but on a slightly different constitutional grounds) will see a different outcome. By then, the IPR process may no longer be known as the “patent death squad,” as invalidation rates continue to slowly drop under the new PTAB rules.
We keep talking about China eroding the US historical patent dominance these days. According to a recent report, the numbers support strategic technology areas such as artificial intelligence, the Internet of Things (IoT) and financial technology. The table below shows the loss of influence from American-based inventions in those areas in the past decade, most of it being offset by Chinese-based filings.
Since I believe it is paramount to maintain the integrity of the system on both the sides of the enforcement coin, I’m the first one to condemn the unethical use of patents. So it is interesting to note when a rare case is reported alleging patent abuse by an operating company. Indeed, slot machine maker Everi Holdings has been hit with an antitrust lawsuit accusing it of using sham patent filings and baseless litigation to monopolize the market for casino ATMs. The case is still pending, but we shall see where the chips fall… Stealing a page from this same playbook, telematics supplier Continental Automotive has recently filed a Northern District of California suit accusing patent pool Avanci and other standard essential patents (SEP) holders of colluding to drive up the price of wireless connectivity for autos. This is a case everyone will be monitoring closely, as it strikes at the very heart of patent pooling and obligations to license SEP under what is called “Fair, Reasonable And Non Discriminatory” (FRAND) terms. The Chinese government has picked up on this too as it has recently been announced that large 5G patent owner Ericsson was under antitrust investigation in Beijing over its licensing practices.
Louis Carbonneau, Founder & CEO
(IAM World’s Leading IP Strategists since 2012)
Tangible IP is a strategic IP advisory firm and the global leader in the sale and acquisition of high-quality patents, with a proven track record of success with over 3000 patents successfully brokered. If you are looking for strategic IP advice or have patents that could be monetized to raise capital or reinvest into your R&D, please contact us at email@example.com.
Mr. Carbonneau was a keynote speaker at the CCI & BDC Spring Intellectual Property Symposium: Supporting Canada’s IP Future in Toronto on May 15th 2019.
Mr. Carbonneau spoke at the Licensing Executive Society US/Canada Leading Edge Series: Standards In Licensing in San Jose on May 14, 2019.
Mr. Carbonneau was the keynote speaker at FORPIQ in Montreal on May 1, 2019.
Mr. Carbonneau spoke at the Smart Montreal conference in Montreal on Feb 4.
Tangible IP was retained by the prestigious National Research Council of Canada and by the Aluminum Association of Canada and AluQuebec to advise them on their overall intellectual property practices and strategy.
Mr. Carbonneau will be attending IPBC in Boston on June 16-18, 2019.
Mr. Carbonneau will be speaking at the next annual meeting of IPIC in Ottawa on September 25-27, 2019.
Mr. Carbonneau has been invited to speak at the Licensing Executive Society US/Canada Annual Meeting that will take place in Phoenix on October 21-24, 2019.
Mr. Carbonneau will be moderating a panel on the Future of IP Transactions at the World IP Forum in Taipei on November 6-8, 2019.
Recently Completed Transactions
While marketing the assets for sale, Tangible IP recently secured a license for the owner of a Multi Factor Authentication patent portfolio.
While marketing the assets for sale, Tangible IP recently secured a license for the owner of a Remote Desktop Virtualization Software patent portfolio.
While marketing the assets for sale, Tangible IP recently secured a license for the owner of a Marketing Automation Software patent portfolio.
While marketing the assets for sale, Tangible IP recently secured a license for the owner of a Mobile Banking and Image Submission patent portfolio.
New Portfolios for Sale
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