I spoke on the topic of patent valuations last Friday in Salt Lake City, and I am always amazed that this topic remains one of certain controversy between, on one hand, what one can model based on GAPP principles, and on the other hand, the reality of the market. I elaborate on this conundrum below. Additionally, we have a few new transactions under our belt that you can review in our “Tangible IP News” section. Lastly, I share some of the most recent patent market data regarding following an all broker summit a few weeks ago.
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
On the deal front, we recently brokered 2 successful licensing programs in the Quality Control Assurance and the Cellular/Wireless areas respectively. You can see the full announcements here and here. We also successfully represented the buyer in the acquisition of a patent portfolio owned by a large pharmaceutical company but cannot report more details due to confidentiality considerations.
While we have received offers on several portfolios currently under brokerage, there is still time to put a bid in if you haven’t’ done so. Hurry up! We still have the following portfolios for sale.
- AST IP3 2021 Portfolio – 34 Unique LOTS representing some of the most relevant assets submitted via AST’s IP3 program in 2021. A variety of technologies are available including semiconductor, multimedia, networking, wireless and others.
- High Frequency Trading Portfolio – Owned by SpectraNet LLC, this portfolio consists of two foundational patent families with extensive industry wide evidence of use.
For more details, please email us at email@example.com. Similarly, if you’d like to be added to our distribution list in the future so that you are the first to receive new opportunities, please email us at firstname.lastname@example.org.
Featured Portfolio For Sale
Given our audience, we felt it prudent to start sharing a few particularly interesting portfolios available for sale. This issue, we will focus on a great portfolio in the HVAC technology sector.
CleanAlert LLC owns several patents related to wireless monitoring and predictive maintenance systems for HVAC and refrigeration systems. Specifically, the portfolio relates to devices for measuring and monitoring differential air pressure and relatively low rates of air flow through the air filter of an HVAC system. The offered technology also measures a degree of clogging of the air filter and indicates the operational state of the air filter. This can reduce energy consumption, lower maintenance costs, and prolong the life of the equipment.
The portfolio was filed in 2004, is enforceable until 2034 and representative evidence of use has been prepared for 10 companies operating in this space.
For more information, please reach out directly to us at email@example.com.
We are always open to reviewing high quality portfolios. Some of the areas of most interest to our buying network right now include:
- Medical device technology – wearables and IOT health monitoring also of interest
- Autonomous driving systems
- Wi-Fi (preferably SEP)
- Hardware such as cameras and displays
You can review our criteria here but if you own a patent portfolio with at least two issued US patents and have knowledge of others using your technology (infringement), we are happy to review for potential brokerage. We will also look at larger portfolios where evidence of use is uncertain.
We also have a buyer with interest in acquiring battery-related assets – specifically rechargeable assets applicable to either (or both) consumer devices and electric vehicles.
Please reach out to firstname.lastname@example.org with any assets that may match these requests.
A few weeks ago, I commented on jump rope world champion and inventor Molly Metz’s story. I discussed the interesting argument raised by Molly’s attorney that damages incurred by infringing products PRIOR to the cancellation of the patents should still be accounted for. This week the US Supreme Court had the opportunity to decide if it would entertain this argument and hear the case on its merits. Unfortunately, but not surprisingly, it declined to hear the case in what could have been a game changer for patent owners who want to recoup past damages from infringers.
In the district of Delaware, a new judge (on the bench for only 6 months) has issued a patent verdict of over $40M in favor of a university and its licensee. While common in districts in Texas, we don’t often see such verdicts of this magnitude in Delaware. In this regard, Meta recently tried, unsuccessfully for now, to toss aside a $175M verdict that it infringed upon two Voxer patents that turn one’s phone into a walkie-talkie device.
Also of interest was a $400 million settlement by Moderna to the National Institute of Allergy and Infectious Diseases (part of the National Institutes of Health) related to a novel prefusion Coronavirus Spike protein vaccine antigen. This, if nothing else, shows the stark difference between how patents behave and are valued when comparing the pharmaceutical and high-tech sectors. Which brings us to our last topic…
As a guest speaker last Friday at the Utah IP Summit, I was joined by a distinguished panel where we discussed the ever-interesting topic of how to value patents. I was reminded once again how disparate values may be depending on who you ask the question and what you intend to do with that valuation report. Full disclosure, we routinely perform intellectual property valuations for clients and our valuation specialist is a well-respected industry expert, often appearing in court as a damages expert in patent cases.
First and foremost, one must remember that the value of a patent lies in the eye of the beholder. For individual inventors that simply want to be credited as such, a patent’s value is mostly sentimental. For small operating companies that need to raise funds and fend off clones, the value of their patents lies in the promise to investors that it can maintain its competitive advantage over time by acting as a deterrent to infringers. For large companies who sit on tens of thousands of patents, the value of each individual one is largely incremental, but there is safety in numbers when negotiating cross patent licenses with other behemoths. Thus, one has to understand why we value patents in the first place for the how to make sense.
When we perform such projects, we usually start from some financial data offered by the client about the market they are in, their expected market share and growth projections, past revenues, etc. We then build a sophisticated model that assumes some of that growth is sustained by the IP assets of the company, and project a value through the life of the patents (with some technology obsolescence built it) to arrive at a large number which we then discount to today’s cash value. Very often, the value of the IP (mostly patents, although we loop in trade secrets and knowhow if the company is operating) is calculated in the tens of millions.
Such a valuation report may help sustain a higher price at an exit, serve as a basis for an M&A negotiation, or help with a tax transfer where an independent valuation is required, etc. What it will never reflect accurately though is how much someone may pay for these patents, outside any other consideration. In other words, most patent valuation reports are of little use if what you intend to do is sell or license your patents. Why is this? Simply put, the market does not value patents this way. On the secondary market, patents are like accounts receivable; they only have value if you can collect from debtors (here: infringers) since injunctions have been (for all intents and purposes) eliminated in the US.
I have said this many times in this column; most patents transact solely for their assertion value. The price one may pay for them is generally dictated by the price of the alternative, which is usually the cost of defending a lawsuit or challenging the validity thereof. This is why the same patent may be worthless if no one infringes and suddenly take on increasing value when someone does, as counterintuitive as it might sound. Which explains why most of the patents that transact do so near the end of their term when a whole industry has finally caught up with the patented technology. If you are the only game in town, build a company if you can. Don’t ask us to broker your patents; they likely won’t sell.
For the few that do, you must look at the cost of the alternative – what someone may pay to make those go away. 10 years ago (before PTAB), you had to spend millions to invalidate a patent, with a 50/50 chance of winning. Patent valuations, at the time, reflected that. Nowadays, the PTAB invalidates issued patents at a rate of 75-85% for a cost to the challenger that hovers around $200,000. Same patent, now extremely different value.
This is why it makes little sense to pay tens of thousands of dollars (even to us) to gain a valuation report if your intent as the patent owner is to sell the asset(s). It creates completely unrealistic expectations as to how much the market will price a certain set of patents and people end up invariably being disappointed. And remember, those reports do not come cheap. So, if you have money to invest, you would be much better served a) looking for evidence that your patent(s) are being practiced by someone (many is better) and b) in the preparation of high-quality claim charts. We can help with both, and these are the first two steps we perform when we take a portfolio under brokerage. That IS what the market values.
Last but not least, I would like to share some data gathered by our good friends at Richardson Oliver who have been tracking the patent market for almost a decade.
The first slide shows a significant uptick in portfolios offered for sale in 2022 compared to 2021. The light blue refers to private packages whereas the dark blue refers to brokered packages.
Interesting enough, while most patent owners still try to sell their patents directly (i.e., without a broker), the next slide shows that on average, 90% of all patents that sell are transacted via a broker. Which means that the quasi totality of private packages will never sell.
Finally, the data shows that patents where evidence of use (EoU) has been developed (generally in the form of high-quality claim charts prepared by industry professionals) are on average 2.5 times more likely to transact than if no such EoU exists.
In short, to sell a patent you need; i) a good broker, ii) litigation grade claim charts showing evidence of use, iii) realistic expectations as to pricing and iv) a lot of patience… Other than that, it is very easy. 😊