First and foremost, I hope each and every one of you and your respective families are staying healthy and practicing proper social distancing in order to reduce the propagation of COVID-19 worldwide. We are in a unique situation where the simple act of staying home is a critical piece of the solution to this global problem.
To our readers in the most affected regions; we truly feel for you (our team is based in Seattle and we know what this means firsthand). To those living in countries that have recently been able to “flatten their curve”, we hope it will stay that way; your success is a ray of hope to the rest of the world and highlights that proper measures, discipline and resolve can combine in vanquishing this terrible enemy. Don’t let your guard down.
On our end, we attempt to operate business as usual, though we are all working remotely needless to say. We are also fortunate to be part of an industry that can still function for the most part virtually. As such, we were able to successfully close the sale of one of our portfolios last week (see announcement here) and we have 4 more in closing. Interestingly enough, we concluded that recent sale after having previously closed 4 distinct licensing agreements on the same portfolio. This brought, in aggregate, almost half a million dollars to our client for what is a single US patent portfolio. We also expect much more will come as a result of the new owner’s licensing program starting shortly. So, despite what is still a very challenging environment, there are creative ways to bring value to innovators by monetizing their portfolios without resorting to any threat or litigation.
In this regard, we also just received the 2019 patent market report from ROI and I want to share with you the main highlights:
- The average asking price of a US patent was $280,000, up from 2018. This is a reflection of a more positive environment.
- Roughly half of all transacted deals in 2019 were brought by NPEs
- $300 million worth of brokered deals closed in 2019 (down from $353 million in 2018) (Note: this number does not include licensing revenues like the ones we generate from most of the portfolios we take under brokerage)
The whole report is available here and I invite you to read it as it contains many other interesting data points.
Not surprisingly, in these challenging times, a lot of people have asked me how a recession might impact the patent market as a whole. There is no easy answer to this question as we live in unprecedented times and things are extremely fluid. However, if recent history can be trusted to make predictions, I would remind everyone that the patent market has historically been somewhat dissociated from the rest of the economy. To my point, the “golden age” of patent valuations took place in the 2008-2012 period, as the US (and most of the world) was going through the “Great Recession”. By the same vein, patent prices started plummeting in 2013 when the economy was rebounding, as IPRs and the Alice decision introduced significant headwinds. And those prices remained mostly flat for most of the sustained economic growth period we enjoyed. Recently though (in the past year), we have witnessed some improvement as a result of a change of direction at the USPTO and consequently a more balanced narrative favoring patent owners (Alice is still doing substantial damage though).
If you are an investor, you might be tempted to conclude that patents work a bit like a hedge fund and have a curve that operates in reverse to most other asset classes. I wish it was that simple; the reality is that the same forces that drove valuations down for years and allowed them to gain some momentum in the past year are tightly intertwined with the legal environment and other factors that have little bearing on the day to day economy or how the stock market behaves. I encourage you to go back and read our latest assessment to refresh your memory on the factors that influence the patent market.
One scenario to consider is that a bad economy may force companies to look for alternative sources of revenues as their sales dwindle. Patent monetization may be viewed as a low hanging fruit for many IP-rich companies looking to pick up the slack. More patent assertion naturally leads to increased litigation, which in turn may put an upward pressure on patent values as we have historically seen. Remember the cost to defend a patent assertion is incredibly expensive and this expense is often a good reason to look at settling cases by either acquiring the assets or taking a license. Finally, jurors do not really care whether large Fortune 500 company A or B had a bad quarter when deciding to punish it for patent infringement… And as Americans see bailouts to the largest corporations, sympathies for the infringer may be a tough sell to a jury of our peers.
We will continue to keep a close eye on the marketplace and update you on how this truly global and unprecedented situation might impact this part of the world. In the meantime, we continue doing what we do best; assisting our clients by providing them a conduit to monetize their innovations and making sure they are fairly compensated for their contributions.