With the summer holidays in the rearview mirror, we can feel the buzz of a new fall season where everyone looks at those annual lofty goals and realizes that there are only 3 months left to achieve those. OMG! as my millennial kids would say… On our end, we want to pause and reflect upon the fact that this column is now read by over 20,000 faithful subscribers worldwide, something that took a decade of writing to reach. We are extremely grateful to our readers who regularly tell me that they enjoy this column and … actually read it. What a concept! 😉
The IP market is abuzz as well and we’ll share a few updates related to industry consolidation, deadbeat clients, UPC updates and the possible return of injunctive relief for patent cases in some jurisdictions. On a more substantive topic, as we are bombarded by inventor and large companies alike wanting help monetizing their patents, we must discuss the juxtaposition of unrealistic pricing expectations and market realities. Too often we receive “valuation” reports done by firms who have never sold a single patent (we have brokered well in excess of 5000) that set expectations far outside of the market constrictions. So, I want to tackle the always confusing topic of patent valuation versus true patent value. Spoiler alert: I may deflate a few bubbles out there.
Our team is traveling this weekend from one Washington to another to attend the IP Watchdog Live 2023 Conference. I am told by the organizers that there are still tickets available for this excellent event where content is king. I will be talking this year again at the Sunday kick off panel on Global Perspectives on Monetization along excellent co-panelists. We hope to see many of you there.
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 announce that Tangible IP closed another transaction a few weeks ago with the sale of the AST User Authentication Portfolio. You can access the full announcement here. We also completed a few voluntary licensing transactions regarding a Telecommunications portfolio. We also have a few more deals in closing that we will announce later on.
We are hard at work preparing the marketing documents for the sale of a rather large portfolio owned by German leader ams-Osram in the smart lighting space with approximately 350 assets and relatively few encumbrances. If you’d like to receive it, please email us at email@example.com.
We also have several other portfolios for sale that offer great opportunities to savvy buyers. All of our patents for sale are listed here. Similarly, if you’d like to be added on 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
In the next two weeks we will bring to market a great portfolio owned by pioneering automotive solutions developer Tula Technologies. This portfolio represents a subset of Tula’s core technology in the hybrid engines sector. Evidence of use has been prepared against a major car manufacturer in the US, Germany and China. If you’d like to receive the materials as soon as they are ready, please reach out to email@example.com.
Call for high quality portfolios!
We are always open to reviewing high quality portfolios. Some of the areas of most interest to our buying network right now include:
- Video compression SEPs
Medical Device technology – particularly wearables and IOT health monitoring
- Patents applicable to RFID tags, RFID Antennas, RFID readers and Near Field Communication (NFC) devices.
- SEPs (Declared or not) relevant to any of the following: 3GPP, 802.11, LTE, 5G
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.
Please reach out to firstname.lastname@example.org with any assets that may match these requests.
Is the IP Advisory Market Shrinking?
Recently, we have seen a few announcements that point to some consolidation of IP advisory services that arrive on the heels of budget constraints from large consumers of IP analytics. It started with large insurer and IP player AON letting go of about one third of the personnel in its IP solutions group which offers litigation insurance and IP backed lending, among other things. Only a couple of weeks later, KPMG announced that some in its IP Consulting group were laid off as well. Both cited poor economic conditions as a cause.
Finally, just a few days ago J.S. Held, a global consulting firm, announced that it had acquired TechPats, a Philadelphia-based, full-service intellectual property (IP) consulting firm with reportedly over 200 employees. J.S. Held indicated that it will roll TechPats into the newly created IP specialty services group under the Ocean Tomo brand, which it acquired last year. Ocean Tomo, a Chicago-headquartered IP consultancy, had 80+ employees at the time of its acquisition. In 2021, J.S. Held acquired IPFC, a Houston-based forensic and economic services consultancy with expertise in IP infringement and is now poised to be a large provider in the general IP services sector.
Our best wishes to our good friends Marek Wernik and Chris Wichser who will now join Ocean Tomo founder and IP veteran James E. Malackowski.
The same consolidation paradigm may already be happening on the licensing side with the announcement a few months ago regarding the merger of Via Licensing and MPEG LA, which will now operate under the new banner VIA Licensing Alliance LLC (Via LA). It was recently reported that this is actually a $160M acquisition by Via Licensing’s parent (Dolby Labs) of the former video codec patent pool consortium.
By now, everyone who reads this column knows that I have not been too kind to the Canadian based tech company in the way it has (mis)handled the sale of its large patent portfolio. It bungled the announcement of a first deal just to see it unravel months after; then closed another which it announced as much larger than it was in reality and finally was sued by the first buyer regarding its termination of the transaction. You can refer to past columns for details. (By the way, I truly enjoyed watching the movie Blackberry which recounts another series of mistakes made by the Waterloo based giant a decade ago and had a blast discovering the ultra-competitive side of our good friend Jim Balsillie.)
During this most recent saga, I took comfort in thinking that my fellow brokers at Tech + IP (Elvir Causevic and Ed Fish) had been duly compensated for putting not one, but arguably two deals together until one truly closed and money changed hands. Not so fast, apparently; Tech+IP filed a lawsuit earlier this summer in the Southern District of NY for repayment of $1.2M in advisory fees that Blackberry is apparently refusing to pay them. I read the entire complaint, and I am really curious as to what Blackberry’s lawyers will come up with to explain why they won’t pay the broker commission here. Needless to say, it is hard enough doing what we do for a living and compensation for work completed when we do close a transaction should be the least of our worries. To be continued.
The UPC (Update):
(From our last column) We reported in a recent column that there had been no stampede toward the European Unitary Patent Court, especially by large players who were happy to sit on the sidelines and observe the evolution. Only a month later, this initial observation has shifted as Huawei took the lead in that direction when it sued US based competitor Netgear before the UPC asserting that the latter violated its Standard Essential Patents (SEP) around Wi-Fi 6. And yesterday, Panasonic filed a series of new lawsuits against Oppo and Xiaomi before the new UPC. It would appear that the logjam has been broken.
(New) In the last month only, many more large companies, especially Asian patent owners, have taken advantage of this new Unitary Court to bring law suits against alleged infringers. This week, everyone awaited a decision on the first requests for a preliminary injunction to be issued by UPC judges sitting in Munich and Vienna respectively. Looks like they will have to wait a bit longer to test drive the available remedy as the Vienna bench skirted the issue altogether by concluding that there was likely no infringement taking place. The decision in the Munich case (Nanostrings) is scheduled for September 19th though.
“Wholesale” Licensors Doing Well:
I often refer to what I call “wholesale IP licensing” (think Ericsson and Nokia), as distinct from smaller patent owners trying to get compensated for being infringed upon by large implementers. Well, two recent news stories show that wholesale licensors are able to flex their large muscles when needed in jurisdictions that still care about patent rights (i.e., not in the US). Earlier this summer, Nokia won its UK trial against Chinese handset maker Oppo after winning a previous case in Germany. Oppo has now been enjoined from selling its phones in both markets. Not a small feat and one that demonstrates the exclusionary nature of patents at work.
Its Swedish cousin Ericsson also had success, but outside of the courts in its case, after entering into a companywide patent cross license agreement with Huawei, which also holds a quite sizable portfolio. While the financials of the deal were not publicly reported and Ericsson gains access to Huawei’s large 5G portfolio, Ericsson’s latest filings suggest that it will still be a net positive of potentially up to 600 M SEK (approx. US $53M).
Valuation or Value?
Some recent articles have revived the ever-controversial topic of IP valuation vs. value, two concepts that are often conflated but mean two very different things. In our IP advisory practice, we often perform patent valuation projects for clients using generally accepted methodologies and it is not uncommon to establish the value of a given portfolio at a level that is orders of magnitude greater than the value it may have to a third party at that same moment. This is why we so often have to convince patent owners that come to us with a valuation report in hand (prepared by a third party) that buyers will never pay even close to what the report states the patents may be worth.
To appreciate the difference, one must understand the 3 generally accepted methods for valuing patents. The first and most common one, assuming one has some reliable underlying data, is the income-based method. In short, this approach presupposes that the patent owner is selling products or services practicing its own patents and that those patents contribute to the sales being made by protecting the owner from copycats (the assumed contribution percentage is often at 25% of the sales). The valuation expert can then build a model based on past sales, future projections, expansion of market share due to the patent(s) and some contraction later due to technology obsolescence as you near the end of the patent life and new technologies replace the incumbent. Throw in a few discounts to account for contingencies and bring it back to today’s value and you get a number that usually in the millions or tens of millions of dollars even for a small portfolio.
Obviously, this number assumes that the company will continue to grow its sales according to its proforma forecasts (almost never happens), that the patents will still be relevant 10 + years from now (which is rare) and generally relies on a series of assumptions that seldom materialize. In short, the valuation is highly predicated upon variables that are both uncertain and subject at best to wild fluctuations. More importantly, it represents the value of the portfolio to the patent owner only, and only if it accomplishes all that the model requires in order to be reliable. Needless to say, the patents also have some perceived intrinsic value as a deterrent to maintain barriers to entry or as a signal to investors, lenders and the industry alike that the company is innovative. Those benefits are real, but always difficult to estimate.
The other two methodologies for valuing patents are essentially i) cost based and ii) market based. The cost-based approach essentially reflects the costs one would incur for acquiring the same patents. Since the patents only provide a right to exclude others from practicing the invention (or a right to sue infringers for damages in the US), their value has to be decoupled from the underlying technology they possibly implement. For example, if a technology cost $10M to develop over the years and the patents that are filed in parallel cost about $100K to draft, file, prosecute and maintain, then the cost based valuation of that portfolio will be closer to 100K, not $2M. There is obviously added value in having already filed these patents, given the “first to file” system. But again, it is hard to quantify. All in all, this method is seldom used in valuation practice unless the patent owner itself acquired the patents from another source, in which case it will likely carry these in its books at the amount it paid for. This value, however, actually reflects more the fair market value of the patents at the time they were transacted than the actual cost incurred by the initial owner.
Which brings us to the market-based valuation, which in my opinion is the true measure of the immediate value of patents, as it represents the only reliable data point if the patent owner is suddenly in need to liquidate these assets. That is where the rubber meets the road and that road tends to be quite bumpy.
When trying to put a valuation on patents using the market based approach, one has to first account for the fact that probably 99% of all issued patents will never transact, meaning they will not sell even for $1. The reason is that the acquirer has no interest in owning patents just for the sake of owning a piece of property given the maintenance and annuity (outside of US) fees it would have to pay to maintain the patent(s) in force.
Thus, from that standpoint, the value of 99% of patents is simply $0. This was not always the case. Even 10 years ago, many patents would be sold for their “futuristic” value, i.e., the acquirer would recognize that the inventions had merit and that one day the industry would finally adopt this patented approach. Think of it as buying “futures”. In the patent world nowadays, there are no “futures”, just the present and it is not kind to patent owners, as we all know. Injunctions in the US which used to keep infringers honest are long gone, the PTAB invalidates issued patents at a rate of 75% and the Alice doctrine does the rest of the damage in court.
This is why just a minuscule portion of patents have immediate value regardless of their lofty paper valuations. So how much are THESE ones worth then? Well, it will depend on how many patents there are in the same family (the more the better), whether the family is still open (strongly preferred), the strength of the infringement theory and the risk level of finding relevant prior art that may invalidate the asset(s). Then you have to look at who is infringing, where, for how long and at what kind of volumes, so that you can build a damages model that gives you a sense of recoupable damages against each infringer (the more of those the better, again). Finally, where you might be able to file suit will make a huge difference these days, whether it is in the US or abroad. Then and only then can you get a better sense of the true value of any given patent.
This is what we must go through each and every time we consider taking a new portfolio under brokerage. It is not a job for the faint of heart these days.