Hello and Happy Valentine’s Day to all!
Getting one’s booster shot has been the talk of the town. But who would have guessed that the IP Market would get a shot of its own last week? Yes, I am talking about the $600M patent divestiture recently announced by Blackberry. This deal infuses much welcome validation that patent assets do still have significant value assuming they are packaged correctly and sold to the right buyer. More below with my take on this deal and potential unforeseen hurdles ahead…
In parallel, we saw two important decisions in the past two weeks. These highlight the outcome when large damage awards leave the hands of the jury and enter the scrutiny of the appeals court. I’ll give you a hint; it usually does not benefit the patent owner. I’ll expand on this as well.
Finally, we have some interesting data to share on what is going on in the courts, which in turns impacts the IP market directly.
As usual, as I focus on the macro picture in this newsletter, I want to remind everyone that we track everything that is going on in this world and for those who need their regular dose of news, once again you can follow me on either LinkedIn or Twitter where I post almost daily about some of the most newsworthy events..
Tangible IP News
In our previous issue a few weeks ago, we announced the sale of a digital content delivery portfolio owned by Media I/P. We are now closing on a few transactions that we should be announcing shortly. To get sense of the patent portfolios either sold or licensed in the past few months, check here.
As we indicated in our last issues, we are letting our readers know the areas where we have buyers willing and ready to acquire patents. Our VP Brokerage, Erika Warner is the point of contact for those. You can also reach her at email@example.com.
Currently, we either formally or informally represent buyers with interest in the following technology areas:
- LTE SEPs – NOTE: encumbrances to major handset manufacturers are acceptable
- Portable Audio Recorders (Handy, Field, Podcast, Video, etc.) – with customized applications for field recording, music and podcasting and/or Digital Mixing Products used to mix, monitor and record professional-sounding podcasts and music performances
- Wireless Charging and/or Wireless Power Assets as they relate to phones/tablets/laptops
- We are also always interested in reviewing Semiconductor patent portfolios as we have a wide variety of buyers interested in reviewing patents in this sector
- Medical Device technologies specifically medical device imaging – ultrasound, MRI, x-ray
It was a decade ago that we last saw a transaction of this magnitude with Microsoft’s acquisition of 800 patents from AOL for a whopping US $1 billion. It then resold some of those to Facebook (now Meta) for $550 million. Incidentally, can you imagine anyone paying $1 billion for 800 patents nowadays???
There were a few other noteworthy deals subsequent to AOL, such as the acquisition, also in 2012, of 1100 imaging patents owned by Kodak for $525M by a consortium of tech companies through defensive aggregator RPX. Also, defensive aggregator AST’s acquisition (via a special purpose vehicle called Bridge Crossing) of the vast majority of the MIPS portfolio for $350 million. More recently, in 2018, Interdigital acquired the whole Technicolor Portfolio (21,000 patents) for a paltry $150M in cash, but some of the future revenues were to be shared with Technicolor and the whole deal was valued at $400M if memory serves me well.
But the Blackberry deal is newsworthy for a few reasons; first, it is the largest NPE driven deal reported to date. The portfolio was not bought to protect infringers, but to be asserted directly against those. This is somewhat ironic given that Blackberry was almost undone when an NPE sued it for patent infringement in 2006. Research in Motion (as it was then called) had to shell out almost $612.5 million in cash to settle the case brought by NTP Inc., a patent holding company, to avoid an injunction that could have blocked the sale of its flagship phones in the US. As you may remember, people were addicted to those pocket-sized keyboard phones, hence the nickname “Crackberry”. (This was also before the eBay Supreme Court decision which consequently made such injunctions pretty much a thing of the past.) Blackberry is now getting that $600 million back, so to speak, 15 years later, but at the high price of selling 30,000 patents which it conveniently calls “legacy” assets to soften the blow. Legacy they were to its product line (BB no longer makes phones), but certainly not to its balance sheet…
Second, it is not exactly a straight patent sale; thus, the usual metrics (such as price per patent), do not really apply here. The acquirer is buying the whole and extremely profitable IP licensing division, which comprises patents, knowhow, significant royalty streams on licensing deals already in place, future renewals thereof, precedential licensing data, a very talented licensing team, etc. So, this is more akin to an M&A transaction than a mere sale of patent assets, even if the patents are clearly the deal drivers. Frankly, if not for the fact that Blackberry is a public company and the market has never been a fan of the revenue lumpiness associated with IP licensing, there would have been no good reason in my opinion for the company to do this deal. Most of the expenses were already accrued, yearly revenues were substantial (even if not linear) and most importantly, almost pure profit! Find me another business division that can generate hundreds of millions of dollars of revenues year after year with very limited CAPEX and a team that you can count on a few hands. Now that this profit center is gone, Blackberry will need to look for other areas to grow its business and none of them will have the same kind of returns overnight. It will be interesting to watch how the market views this deal a year from now.
Third, this is unusual because the deal is not actually done. What? You heard right. Blackberry’s CEO was under significant pressure to close something in January, as he had promised investors, and he barely eked out a late Jan 31st announcement. But if you read the fine print, there are some important pieces to this puzzle that still need to fall into place before it is fully consummated. The first aspect, which is common, has to do with regulatory approval by the Canadian security and competition authorities, who have a few months to do so. Canada has been a late comer to the IP game, but it now takes its homegrown IP seriously – at long last – and does not want to see another Nortel. Remember with Nortel, all the IP of that crown jewel was bought and monetized by large US players and the proceeds from the sale of the Nortel portfolio ($4.5 billion) essentially went to reimburse mostly US based secured creditors in the bankruptcy. Here, the Federal Government was eager to avoid another black eye and it made sure at least one investor in the syndicated deal was a Canadian entity (a pension fund). So now that this box has been checked, they will likely let the deal go through. US authorities also need to bless it, but we don’t expect any hiccup there either, unless somehow federal regulators come up with a new legal theory and decide to impose a double standard that applies only to “patent trolls”. Both Congress and the courts already do it after all. Let’s hope that won’t be the case.
The other part of this puzzle is trickier. Because of the pressure to announce something before the end of January to avoid a sudden dip in stock price after missing a self-imposed milestone, their CEO did so as soon as the debt portion of the transaction was in place; but that did not leave enough time to close the equity portion of the deal. Which means that as of today, there is still $90 million missing to close the funding. Our sources tell us there are investors lined up already (all from North America) and that no one close to the transaction is really worried about this part; but you know how these things can suddenly derail with time…
In any event, this transaction infuses a breath of fresh air to the IP marketplace, and it definitely feels like a shot of vitality for patent owners, at least larger ones, and it may encourage many others to follow suit, especially if they can monetize non-core assets as in this case. What it will mean for individual inventors however remains to be seen. But it proves nonetheless that patents, as an asset class, are far from dead and this deal may be a harbinger of more to come, as they rarely happen in isolation. It also shows that there is more than enough money available from new sources to support very large transactions, as operating companies have largely deserted the field, preferring to fight individual cases in court rather than proactively acquire or license patents relevant to their business.
Two New Bites at the Apple
One of our 5 factors for evaluating the patent market’s vitality is large patent awards. The higher the damages awarded, the more headlines. The more headlines, the more boardroom discussions. And eventually, some companies receive instructions to avoid similar fates as the losing defendant and tend to engage a dialogue, as they should, when they are alerted that they may infringe someone’s else patents. In turn, this gradually drive valuation up. At least, that is the theory, though let’s be honest, most of them don’t really care.
So, when we see not one, but two large awards from lower courts being overturned by the Federal Circuit just a week apart, we need to pay attention. In both cases, the short-term beneficiary is Apple, which was on the receiving end (along with Broadcom) of a $1.1 billion award in the Caltech case, and another one of $145 million (later reduced to $85 million) in the Wilan case.
Although the Federal Circuit sided with the patent owners on some important points (especially on the issue of estoppel for Caltech), the practical effect is that in both cases, the judges did not agree with the methodology used by the Plaintiff’s damages expert and remanded the case back to the lower court for a new trial on those points. Some observers have argued that the plaintiffs have only themselves to blame by relying on unproven legal theories. Regardless, if I were Apple’s counsel, I would feel like a million bucks today and be in my boss’ office asking for a big pay raise. These guys have a real knack for finding ways to drag these trials out for years and years until the other side is left with no choice but to settle at a discount. Others who may have a case to bring often arrive at the conclusion that it is not even worth trying… You just wish all this legal talent was spent on more noble causes.
I recently published on LinkedIn a table that shows the rate of success of patent litigants in the US, by judicial districts. It has garnered quite a bit of reposting and comments on LI, so I am posting it below for all to see. For those who don’t look at this often, the acronyms like CDCA, DDE, etc. refer to the leading state districts that hear the most patent cases. CDCA means Central District of California, DDE means Delaware, etc. And “patent challenger” is the woke term apparently for “alleged infringer,” which would be more accurate as you can technically argue non infringement even though you agree that the other guy’s patent is valid. The table below does not include settlements, obviously, and most cases will settle at some stage. It doesn’t include appeals either. But if you take away the very bad and the very good cases where at least one party has a strong interest in settling, you are still left with a representative universe of cases where both parties feel strongly about their chances and are willing to take this all the way to trial.
Still, what clearly emerges from the table is that it is very difficult to win patent cases in the US, no matter where you file, although there are places such as in Texas (both Eastern and Western districts) where the rules of practice and rapidity of the docket is likely forcing more settlements. Which makes even more intriguing the unprecedented influx of cash being diverted toward patent assertion these days given this available data. Are there simply too many people playing with other people’s money?