To keep with the new tradition in the United States, this State of the Union column comes a little later than I expected—but Nancy Pelosi had nothing to do with it. (Smile.)
I was actually waiting for some really interesting data, which I recently received. For context, Tangible IP recently participated in the first and most comprehensive, cross-company survey of real patent transaction pricing. It was organized by Richardson Oliver Insights.
Twenty-two industry participants shared details of all their patent transactions for 2015-2018. The results, covering 360 deals worth $522 million, were aggregated in order to extract the average market price for patents sold either directly or in the secondary market.
Although the final numbers are all confidential, the report indicates that prices for brokered patents are higher than for auctioned patents, there is a clear price premium for EOUs (evidence of use, meaning patents that appear to be infringed), and that overall, the market is robust.
Breaking it down
The prices are generally in line with the previous Richard Oliver Insights report available a few month ago that did not have access to this complete set of data.
It is also noteworthy that the typical gap between the asking price and the actual sale is also in line with reported numbers of 30 percent to 35 percent. For such an illiquid market with so few reported transactions, this is actually quite small and reflects, in my view, that most actors involved in these transactions are fairly attuned to current market conditions. Unfortunately, most inventors are not, so it is important that we as an industry should track these numbers in order to avoid major disillusion down the road.
A few important caveats should be made. Most patents in circulation will never sell, so the prices referred here only apply to this very rare breed (probably 1 percent or fewer) of patents that will ever be transacted in a discrete transaction. So inventors should not take away that their patents justify this kind of valuation, let alone a higher one.
Second, and although the reference point here is to U.S. patents, Tangible IP’s daily interactions with buyers suggest there is a substantial premium paid these days on patent portfolios that contain a Chinese or German counterpart, ideally both (a UK patent for Standard Essential Patents is also quite coveted). We actually have several buyers who will not make an offer unless there is such a foreign asset in the portfolio. You should keep this in mind when defining your international patent filing strategy … and budget.
Based on the report, patents with evidence of use command a very significant premium over assets that are not practiced by the industry, especially in the brokered market. This is what I often refer to as the “assertion value” of a patent, which is ultimately the only valid yardstick these days to predict that a certain asset might sell.
Typical sales took less time than what we normally see, but this presumably is because buyers report a shorter time for a deal being on the market and we don’t know what the ratio to buying to selling was. We’d like to see more about how long deals really are on the market.
Also, this is probably on the low side as a large percentage of the transactions in this study were “direct” deals (meaning the seller directly contacted the buyer, or vice versa, which shortens the sale cycle significantly). Brokered deals generally take much longer to close.
Another interesting data point: Despite all the noise about the 2014 Supreme Court Alice ruling being detrimental to software patents, such patents are still the ones that warrant the highest market price compared to other technology areas.
Although Tangible IP was the only exclusive brokerage firm selected in the study given the number of transactions we closed, I am not at liberty to share additional details out of respect because of the confidential material in this report. Let’s just hope that more companies and intermediaries will see value in the future having access to a more objective set of data that reflect actual transactions.
So, where does this leave us in terms of market trends?
If I based my answer on Tangible IP’s specific experiences these days, the fact that we are getting increasingly more requests by operating companies to take on a voluntary license on a portfolio we are trying to sell tells me that although these companies do not really see much value in owning the patents (arguably because they have no intention to assert those against anyone else and they don’t want to pay for maintenance fees), they do recognize that the winds are changing. The legal environment is no longer one-sided in their favor, as it has been for the past several years.
Thus, as the legal risk grows, so does the willingness for potential infringers to take an early (and generally cheaper) license before they find themselves on the receiving end of a lawsuit.
Remember, there are three main sources of motivations for people: greed, fear and love. We are just starting to see a little more fear making a comeback in the patent world.
Buyers and sellers
Beleaguered Intellectual Ventures continued to offset more patents, this time to a few operating companies (such as Facebook, Seagate, and TiVo (Rovi)) as well as various non-practicing entities (a party holding a patent for a product or process but with no intention of developing it). …
Chinese handset manufacturer Oppo continued its buying spree by acquiring a small portfolio from defunct South Korean mobile maker Pantech, which is trying to reduce its $100 million of debt. …
Defensive aggregator Allied Security Trust (AST) announced the results of its third Industry Patent Purchase Program (IP3) by indicating that a coalition of companies, including Verizon, Google and Uber, had collectively spent $3 million to buy patents averaging $99,000 per patent family—2.4 times lower than the average price reported in the study above. AST’s big brother, RPX, announced that it had directly acquired the remaining patent portfolio of a Creative subsidiary for a reported $17.5 million to end all current litigation involving its members. …
Caught in a tight race with rival Uber to go pubic first, ridesharing company Lyft acquired a set of patents from U.S. carrier AT&T, which has been divesting its large portfolio at an accelerated rate lately. Samsung is another company that does not shy away from selling some of its IP assets. …
Wacom, the Japanese maker of high-end tablets and styluses, has apparently acquired more patents amid new U.S. litigation and a push to reach more consumers. Finally, a year after acquiring Technicolor’s patent licensing business and portfolio, Interdigital followed suit and made a binding offer to buy its research & innovation unit.
Winners and losers
Intellectual Ventures had a rare win recently when a court established that it is owed $34 million by T-Mobile and another $9 million by Ericsson after a jury returned its verdict. It will be interesting to see if and how much of this award survives appeal. …
Patent owners in general and particularly those in the life science space may received a most welcome gift from the United States Court of Appeals for the Federal Circuit. It issued a precedential decision in Supernus Pharmaceuticals v Iancu, in which it adopted a more generous view about patent term extensions. When one knows that each day of patent term can be worth as much as $50 million for a blockbuster drug, this decision will no doubt seem a shot in the arm for pharma.
I’ll see you in court
As usual, there was a flurry of new cases filed in court against alleged infringers. A few stand out: MIT professors accused Ford Motors of willful infringement regarding proprietary technologies it invented to propel its Eco-Boost fuel-efficient engines. …
Dish Network, which has blacked out several Univision-run channels after failing to reach a new distribution deal with the programmer, sued it, claiming that the Spanish-language broadcaster is infringing a batch of patents tied to adaptive bit-rate streaming. …
After six years of a protracted patent battle, Portland-based Columbia upped the ante, accusing Seirus Innovative Accessories and its executives of racketeering in a lawsuit that seeks more than $20 million in damages. … The new perceived patent environment may also explain why Excalibur IP, which manages the former Yahoo patent portfolio, filed its very first lawsuit, against U.S.-based Spotify. Excalibur claimed that the streaming service’s “digital fingerprint” software infringes patents owned by Yahoo. …
Finally, inventor-controlled Portus Singapore Pte Ltd. initiated its first litigation campaign as patent owner and exclusive licensee, respectively, suing AT&T, AXP Group and Zmodo Technology. A family of two patents generally related to monitoring and/or controlling devices at a remote location is asserted against each defendant.
Call this a preemptive handshake: Though automotive companies are beefing up their patent portfolios around self-driving and connected cards, they appear to have no intention of repeating the patent war they witnessed in the mobile phone arena. They seem content to play a defensive game rather than use their innovations to create some product differentiation. …
3M settled a lawsuit against California-based touch-screen manufacturer Elo over what it alleged was the infringement of its patents by Elo’s Pro-M products covering metal mesh conductors. …
Finally, and just in time for golf season, golf manufacturers TaylorMade and PGX announced a settlement of their ongoing patent battle. What started the dispute was that PXG believed TM’s SpeedFoam was a little too close to PXG’s TPE (thermoplastic elastomer) filing. The parties can now go back to the tees and let their clubs do the talking.
From the bench
On January 22, the U.S. Supreme Court handed down its decision in Helsinn Healthcare S.A. v. Teva Pharmaceuticals Inc. by stating that a sale of an invention to a third party in which the third party is
required to keep the invention confidential still places the invention “on sale” under the America Invents Act—thus potentially barring the ability to patent the invention.
This decision is going to help generic drug manufacturers, because many pharmaceutical companies have relied on such “secret sales” in
the past when debuting the commercialization of a new drug.
Also, all inventors and patent owners should be careful to complete their patent filings prior to any commercial sales, even if secret. This is a scenario in which first filing a provisional makes sense if time is limited.
As a native Canadian, it is great to see a number of Canadian institutions finally placing a higher value on intellectual property after historically treating IP as a mere afterthought.
Tangible IP was recently retained by the prestigious National Research Council of Canada to advise it on its overall intellectual property practices and strategy. Tangible IP was similarly retained by the Aluminium Association of Canada and AluQuebec as they embark on devising the future of clean and sustainable aluminum production.