Although we have experienced a surge of activity in the patent market, and personally sold or otherwise monetized almost all the portfolios we have taken under brokerage in the past year, it is important to look at a greater data set before jumping to any conclusions. It is also useful to review buyers’ input as they ultimately drive market growth or retraction. We were fortunate to receive the latest report on the state of the brokered patent market from our good friends at ROI. I will analyze some of the highlights below. Given the focus of this newsletter, we will push our discussion on how successful companies build their patent portfolio as well as some of the pros and cons of inbound and outbound licensing in the context of open innovation to mid-June.
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
We are pleased to report the closing of another transaction, a rather large one this time, with the sale of a portfolio of 140 assets originating from ST Microelectronics and pertaining to processors, radio frequency and power management technology.
In the coming weeks, we will be sharing several exciting new portfolios. The first covers those handy floating camera buttons on your phones. It has both US and internal coverage. We are also preparing a great portfolio of over 25 assets originating from both Nokia and Siemens with relevance to wireless communications, including some SEP patents reading on 801.11r and on Zigbee. This one should be out within the next few weeks. In parallel, we are preparing a portfolio that pertains to high frequency trading and should attract quite a bit of interest given the dollars at stake. This one will be ready in the latter half of Q2.
Finally, we should send to market in the next few months an intriguing portfolio pertaining to LED devices as well as a foundational portfolio covering Digital Rights Management (DRM) related to the essential modification of protected media.
If you’d like to be added on our distribution list, please email us at email@example.com.
We have a buyer interested in acquiring US assets in the following technology sectors:
- HVAC (air- and water-cooled chillers, condensing units, air handlers/distribution, sensors, controls, automation, etc.)
- Commercial and residential security systems (access control, video management, cameras, sensors, etc.)
- Fire detection and suppression (controls, sensors, notification devices, water sprinklers/distribution, etc.)
Please reach out to Erika Warner with any assets that may match this request at firstname.lastname@example.org.
The Latest Patent Market Report
For the last decade, ROI has been tracking the brokered patent market, meaning all patent transactions that result from intermediaries, as opposed to direct sales between buyers and sellers. This is no small feat, as the market is relatively opaque and some buyers take a long time (sometimes forever) to record the assignments confirming their new title, while others buy through shell vehicles making the exercise even harder.
Having said that, it’s been about a year since the last report and the passage of time provides a great opportunity to review shifts within the market including the direction both brokers and buyers see things evolving. The following reflects data provided confidentially by over 35 very active participants, reflecting 760 transactions and over 2 billion in sales. Note that the brokered market is only a subset of the overall ecosystem. All data and tables below come directly from the report which anyone can download here.
So let’s start with the basics. As per below, the market is growing at a decent pace and the asking price per US issued patent is relatively stable year to year.
In 2021, there were only 17 brokerage firms that presented 5 or more packages to buyers, a decrease from 26 a few years ago. Interestingly enough, there are fewer and fewer “hobbyists” in this trade, reflecting the fact that successful brokers have to put in the hours and diversify their portfolios. In 2021, 10 of the 40 brokers took 10 or more packages to market, which accounted for 91% of all packages listed (up slightly from 2020). In short, only a very small number of us are covering the market’s needs and I doubt there is room for many more. However, people will always come and go and many brokers are approaching (or have already passed) retirement age, assuming they decide to slow down, this may open new opportunities for existing brokerages or new entrants.
Another interesting point, which is quite consistent with the above, is that even the most active brokers only close on average between 20% and 40% of the packages they bring to market, while the ones who share opportunities more sporadically have a better closing rate. This result is more than likely a reflection of the portfolios represented (i.e., quantity vs. quality). However, this data is a bit deceiving for some players like us. For instance, in 2020 and 2021, we successfully licensed more portfolios than we sold. So even if we ended up selling 40% of the ones we have taken under brokerage, we found creative ways to monetize almost 100% of those assets. Most brokers however do not offer licensing programs in this way and it’s also a difficult metric to track.
Volume wise, the market in 2021 saw 467 patent packages, which was 17% greater than in the previous year. But packages were slightly smaller on average, resulting in a 6% decline in the total number of assets offered for sale.
It is also interesting to track over the last 3 years the package distribution by technology group, which should naturally reflect what buyers are looking for. Interestingly enough, software packages, which had taken quite a hit last year as a result of some 101 uncertainty, appear to have regained their 2019 spot, whereas hardware-related packages are down. This seems a bit counter intuitive; so it is important to note in passing.
Also, of note is that most patent packages brought to the market are relatively small, i.e. 5 assets or less, although the report mentions that larger packages seem to close at a higher rate.
Regarding asking prices (sale prices are almost never reported), there has been a small but constant decline in the last 3 years on the average price (from $162,000 to $146,000 per asset), but the overall median price (where most packages are priced) has remained fairly consistent throughout.
Something else that has remained fairly flat over the last 2 years is the diminishing price per asset as the size of a portfolio grows. This reflects the well-known rule of thumb that the value of most portfolios is driven by a few assets and most others come along for the ride. Hence, the smaller concentration of high value patents, the larger the price per asset, and conversely, as one can see from the following table.
Finally, as most patents only sell for their assertion value (i.e., the value of unlicensed activities), it is important to note how the market behaves when presented with evidence of use (EoU) often times in the format of “claim charts” that illustrate how a certain patent claim is being practiced by a given product or service. If one looks at transaction data aggregated since 2014, packages offered with EoU commanded a 28% premium over those without EoU. In our own experience, many packages without EoU will simply not sell. This goes further than a price differential.
Another area which seems to run a bit contra to what we usually observe in the brokerage market is that operating companies have become more active in buying patents. They just tend to do it in direct sales once they have identified specific needs, as opposed to acquiring what is randomly presented to them. Some of the most active buyers in 2021 (with multiple purchases) are listed below.
The above data reflects a market that has matured and is definitely there to stay, but has been seriously constrained from the heydays of the early 2010’s by a combination of case law (Alice) and new tools (such as IPRs) offered to defendants to challenge the validity of this asset class. It remains largely a very Darwinian marketplace where only the best patents sell and the best brokers survive.
There is no room for the dodo in our world!