It was a busy two weeks since our last column and our team is back from a great and productive trip in NYC where we attended the IP Dealmakers Forum along with a couple of hundreds of decision makers.
I am writing this a little bit ahead of our usual cadence, so that you and I can all take a well-deserved break for the holidays. We all need it! Indeed, we live in strange times as it feels that for every step forward, we soon take two steps backwards. One can definitely sense a generalized fatigue and desperation for the lost normalcy we all took for granted. Unfortunately, it sounds like it won’t be happening anytime soon with the new Omicron variant spreading faster than Christmas wishes. Let’s hope that its high propagation rate, associated with what appears, thus far, to be a milder version than the Delta variant, turns out to be a blessing in disguise and leaves behind a lot less collateral damage.
Tangible IP News
We announced earlier this week the closing on a sale of a patent portfolio owned by our client Honeywell (Building Technologies division). The good news is, some of the patents in this portfolio are still available for a sale/license. Just write us at firstname.lastname@example.org if you’d like to receive the materials. We also have a few more sales in closing that should be announced in the next month. We also entered into 3 major advisory projects, including two where we will be mining large portfolios to identify the most relevant assets for monetization.
We also have available for sale/license the whole patent portfolio representing 54 patents (and associated code base) for the RealNetworks RealMedia HD video codec. This is a great play for any company that wants to own the end-to-end encoding/decoding pipe and free itself from the costs and other dependencies of having to implement an expensive standard. See the full prospectus here.
Similarly, we have a couple of portfolios where there is a short-term opportunity to make an offer before year end where the seller will accept a discounted sale price for getting the assets off the books quickly. One pertains to multi-cab elevators, which are predicted to become more ubiquitous in a semi-permanent post pandemic world where the number of passengers per cab will need to be decreased substantially. Some of those cabs have already been deployed. All reasonable offers will be considered. Read the materials here.
How Old is Your Patent?
In our last column (The Booming Phase of Patents), we emphasized the fact that most patents only start being valuable assets on the secondary market after they reach year 12, and they peak around year 17 (out of 20). This was an educated hunch which I had based on our extensive experience selling those ourselves. Lo and behold, our good friends at ROI were kind enough after publication to share some data with us based on a much larger universe and which shows that the average age of transacted patents is… (drumroll): 12.4 years (when offered) and 14.2 years (when finally sold). Gee, it is such a sweet feeling letting others prove you right from time to time. 😉 See table below for details.
Wi-LAN on the Block?
Finally, I would be remiss not to mention the surprising news released by Quarterhill (the publicly traded parent company of well-respected NPE Wi-LAN) yesterday announcing that its current CEO is leaving, effective immediately and that it “plans to hire investment bankers in the coming weeks to conduct a strategic review of WiLAN Inc. (“WiLAN”). Strategic alternatives to be considered may include changes to the corporate structure of WiLAN, the acquisition or disposition of assets, a going private transaction, joint ventures, the sale of WiLAN, alternative operating models, among other potential alternatives.”
This is surprising since WiLAN just acquired a Wired Connectivity Patent Portfolio a month ago from a publicly traded leader in semiconductor technologies. Its Q3 numbers were also quite decent, and it was its strongest quarter in 2021. Finally, it is currently sitting on a $100M award against Apple which is currently being appealed. So how should one read this announcement? Is this a case of a parent company wanting to focus on its core activity (Intelligent Transport Systems) and letting go of what seems more like a legal business, or is Quarterhill feeling that the current market is conducive to a sale and wants to capitalize on this opportunity to cash out on a well-known entity? Only time (or insiders) will tell.
Is This Market Really Going Up?
I must admit, I am more than a bit confused by the signals coming from the IP community. We just returned from two major IP business conferences back-to-back where the overall sentiment is definitely upbeat as far as where the IP market is trending. Is this still a case of collective case of wishful thinking? After all, people are together for the first time in two years, so maybe human nature takes over and makes us appear more optimistic than we should be after such a long period of reclusion. Who wants to travel just to see long faces? … However, most people we talked to indicated that they are having their best year so far. I would still take this with a certain grain of salt, but we are experiencing the exact same thing at Tangible IP, with a whopping 65% growth over last year, which itself was better than the previous year. Sorry for the plug, but those who know me also know that I am rather competitive, and did not want to sound like this is only happening to others…
Not only the IP market appears to be doing better in 2021, but most people whom I talked to at both conferences were also relatively bullish about where things are going in the near future, both in terms of number of deals we might see and in terms of patent valuations. Music to my ears if you ask me.
One major cause for this resurgence that kept being cited is the enormous amount of money that has been flowing of late in the patent monetization business, mostly via litigation funders and new IP funds emerging left and right. Indeed, according to a new report on US litigation funding and social inflation from the Swiss Re Institute, third party litigation funding investment (all fields included) rose by 16 percent to $17B in 2020 compared to the previous year, despite Covid-19 disrupting legal proceedings. The US accounted for more than half of the investment for litigation funding globally, and it shows no signs of abating.
Another interesting explanation someone suggested for this upbeat market is the fact that most patents in circulation have been issued in the past 10 years and they are generally of a better pedigree, having been prosecuted after the AIA and, in many cases, after the Alice decision. This makes sense to me, although its impact is probably only part of the equation.
But back to funders; we are starting to see some of the funding entities entering the patent acquisition business directly instead of simply taking a bet on a success litigation campaign. This is a logical step if you think about it, since the same kind of due diligence that is required to fund assertion activities around a given set of patents equally applies if you want to buy those outright. The difference simply lies in the dilution factor. Litigation funding entities are very good at math and understand full well that they will make more money, all other things being equal, if there is no patent owner to compensate downstream even if it costs them a little more upfront. So, if more money is available for purchase and assertion, it logically leads to more transactions and, sure enough more lawsuits, hence more settlements or court awards that bring more money back to the investors. Rinse and repeat. This is a virtuous circle for many, and likely a vicious one for others.
But does this influx of money mean the patent market is healthier? Or are we seeing a bunch of late comers to the game who will gamble their clients’ funds while the leaders in this field are already off to the next thing? There is money and there is…smart money. Are the new kids on the block no different than you and me buying bitcoins at this stage, knowing that they used to be a lot cheaper but since everyone is still buying them, so should we?
To answer this question, let’s look at the fundamentals again and go back to the Tangible IP 5 Indicators for market trends:
- Noticeable changes in the supply & demand;
- New case law that may have long-lasting impacts;
- Changes in the regulatory environment;
- Recent large damage awards against infringers;
- Broad availability of funding to support assertion activities.
Let’s start with supply and demand; there is definitely an uptick in buyers looking for patents; but they remain extremely selective and most patents in circulation will not meet the threshold needed for them to pull the trigger on a deal. In other words, there is plenty of money available to buy patents, but it does not mean necessarily that more patents will be transacted. Remember, we are dealing with a very special asset class with no price elasticity and most patents’ value is $0 in that context, as concerns over validity and/or infringement remain present behind each and every potential transaction. Furthermore, the minute large patent owners feel that the market is getting more active, they tend to flood it with their own portfolios to seize on the window of opportunity before it closes. By doing so, they actually depress the market by quickly increasing the available inventory; hence it remains a buyers’ market indefinitely.
As far as case law, we have not seen anything in the past few months that we could call a game changer favoring patent owners. If anything, recent cases have further eroded some of the few bright spots that were still present for those asserting their patents; we discussed extensively in a previous column how the large technology implementers in Silicon Valley have been able to get their cases thrown out of Texas and forced their opponents to fight them on their own turf in Northern California. To those who are versed in this field, this is a major impediment and the same case brought in the Northern District of California is a lot less likely to succeed than if the trial took place in the Western or Eastern District of Texas.
As to the regulatory environment, no one can say that it is really improving. We reviewed a few bills filed lately on the Hill that were definitely not friendly to patent owners. And the same lobby that was largely responsible for creating and nurturing the “patent troll” urban myth in the US -with much success- is close to accomplishing the same thing in Germany, where the German legislature has recently voted to amend the patent injunction statute that made Germany such a patent friendly jurisdiction to date. They are also trying to do away with the so called ”bifurcated” system that has allowed plaintiffs to get a ruling on the infringement aspect of a case (and the right to an injunctive relief) without regards to any challenge to its validity, i.e. exactly the opposite situation we have in the US where you can challenge validity at the same time before the courts, or even before that if you file a timely IPR. We also discussed at length a few columns ago the recent efforts by Sen Leahy to further erode patent owners’ rights. Finally, the antitrust division of the US Department of Justice is now officially revisiting its previous guidance regarding the availability of an injunction to SEP patent owners, which the Trump administration was supporting. Last but not least, there is a certain level of trepidation about the incoming USPTO Director if she is confirmed. So, nothing to rejoice about here…
Moving to our fourth indicator, there have been a few large awards in 2021, but nothing really new in the past couple of months to prime the market. Thus, if we are honest, the only factor driving enthusiasm is the last one on our list. Of course, everyone gets excited when money is flowing into a given segment. But as we have seen over and over in other areas, having too much company is not always a good sign and we firmly believe that once the market absorbs this big pile of money, we will be left with the same fundamentals, some people will move on to other areas after some disappointing performances and only the smartest players will thrive. It does not mean this trend cannot sustain itself; simply that the laws of gravity apply here as well and that for every winner, there has to be a loser somewhere.
With this, and on behalf of the whole Tangible IP team, I wish you and your families a Merry Christmas, happy holidays and to stay safe with your loved ones. We’ll be back in 2022!