2016 Patent Market Report: Overview

This is part 1 of a 6-part series on our 2016 Patent Market Report.

Year in review 2016While 2016 may have seemed like a tough year for the patent market – with dropping sales, decreasing prices, and the effects of Alice continuing to take its toll on fintech – there are also many new opportunities emerging. Our 2016 Patent Market Report shows that despite these setbacks, the patent market continues to be robust and booming. We began writing annual patent market reports five years ago to inform the market and provide analysis of the evolution of the patent market. Here, we have divided our 2016 Patent Market Report into six separate articles, beginning with our overview of the market. In future articles, we will analyze patent brokers and packages, patent pricing, key diligence data, patent sales, litigation and inter partes reviews, and market size.

After five years of analyzing and reporting on the patent market, the only constant appears to be change. Although asking prices have stabilized, sales are down, bringing the value of the brokered market down to $165 million from $233 million last year. However, the launch of both IAM Market and the Industry Patent Purchase Program (IP3) has introduced new buying opportunities. At the same time, the impact of negative patent decisions is becoming apparent as non-practicing entities (NPEs) pull back from the market. For the first time, purchases by corporations have exceeded NPE purchases. Even the biggest NPEs have been affected, with RPX succeeding Intellectual Ventures (IV) as the new buying leader. Further, the data shows that the US Supreme Court’s decision in Alice has crushed much of the nascent financial technology (fintech) patent market and affected software package sales rates. Finally, we received better litigation data this year and it appears that the litigation risk from sold patents is much higher than previously reported – you may want to reconsider your risk models and membership of defensive aggregators.

When we started reporting on the market, we focused on brokered patents because they represented the majority of the public market for patents. We still believe that this market is a valuable bellwether and so this report continues to focus on it. However, the report also includes some discussion of the broader corporate-to-corporate market, as well as new sources of patents.

We maintain that the entire patent market benefits from transparency. In the past five years, we have seen a shift from a select few large companies buying and selling patents to a situation where medium-sized and pre-initial public offering companies are building out their capabilities to buy and sell patents. The industry narrative has shifted from, “I know nothing about the patent market” to “How do we best participate?” While data-driven information about pricing, technology areas, deal terms, the diligence process and other elements relating to the buying process are necessary – and quarterly patent market data is now reported in mainstream media – that information alone is insufficient. Issues of how to define a successful patent buying program, which metrics should be used and how to source patents of particular interest most effectively must be answered as well. The patent market data can be used to help answer such questions.

How big is the market? 

We are currently tracking $11 billion of patent packages, across over 3,500 packages with more than 86,000 assets. Through assignment data, we see that $2.3 billion of that market has sold. However, this number likely underestimates the total sales because not all assignments are recorded.

Figure 1 shows the market that we have tracked for the past five years. It includes both private and public packages and attempts to determine an overall total dollar value for the patent market. We began doing this last year, but reworked the formula to better reflect what was being tracked. Our insight into private packages is limited to packages in which we have had work. Additionally, IP3 and IAM Market have had a significant impact on the number of available patents. That said, the dollar value of the market is surprisingly large and diverse.

Extrapolating the market through 2017, as Figure 1 does, we estimate that between $2 billion and $3 billion in new potential packages should enter the market every year. The sales data as of the second quarter of 2016 is for sales where we have identified an assignment document only. Projecting through 2017, we expect cumulative total sales to reach more than $3 billion.

Landscape transformed by IAM Market and IP3 

Two big events have skewed the overall market for patents: IAM launched IAM Market and Allied Security Trust (AST) launched IP3. These two new patent marketplaces have brought many more packages to the overall patent market. Because of timing and methodology, we are unable to take account of the whole impact of these two new marketplaces on pricing and sales rates, but we do have some initial insights.

IAM Market opened for business in October 2015 and, surprisingly, now comprises 25% of all packages in our open market data. It functions as a platform for companies to list their patents and technologies for license or sale and is positioned not only to list patents for sale but also to showcase which sellers are currently selling. (The authors are listed as sellers on IAM Market.)

Through May 2016, IAM Market listed 194 packages, with 3,724 assets, from 17 sellers, representing 25% of all packages. One note of caution is that the packages have a much wider range of supporting materials than what we usually see from brokers. IAM Market is relatively new and arguably the patents are listed for different purposes from those found on the brokered patent market. We have included IAM Market data in the overall data, except where noted.

Another important development has been the launch of IP3, an AST-run industry patent-buying initiative. IP3 brings together patent-purchasing dollars from a number of companies to buy patents without haggling. This accelerated purchase process begins with patent submissions – for this round the submissions had to be in by June 2016. Each submission is an entire patent family – a change from the previous Google process on which IP3 was modeled. Bidding on the patents occurred in late July 2016 and purchases were due to be recorded via assignments by September 2016. The process is innovative in that IP3 offers a new opportunity for inventors and companies to sell their patents in an accelerated environment with committed capital from purchasers. We have not included IP3 data in the overall data, except in estimating the market in Figure 1.

From our discussions with AST, we learned that approximately 1,400 submissions (each being a patent family, with over 3,000 patent assets submitted) were made from approximately 450 sellers. After initial filtering criteria were applied, 750 submissions were considered for more in-depth review. About half of those had at least one asset which had previously been presented on the brokered patent market. Approximately half of the IP3 submissions came from patent brokers.

Further, 60% of the purchased submissions were of patent families that had previously been presented on the brokered patent market. It will be interesting to see the results of the IP3 process, given the available committed capital and no-haggle process.

Additionally, as predicted, some assignments from this process have already been recorded. On September 16, 2016, the IAM blog reported the discovery of assignments of 78 US patent applications and grants. Because the assignments took place outside of the market year, further details of the IP3 process will be covered next year. However, these results suggest that the process has been successful.

We see IAM Market and IP3 as complementary to existing avenues for buying and selling patents. For example, IAM Market sellers can list assets for sale which are also being presented by brokers. Similarly, brokers can and do submit patents to IP3.

The remainder of our 2016 Patent Market Report series provides details on the market and follows the flow of a typical purchase process. In subsequent posts, we will cover sourcing, asking prices, diligence steps, sales, purchase closing and litigation, concluding with our market size estimate.

CLICK HERE to CONTINUE READING… Up next is discussion of patent brokers and patent packages. 2016 saw a significant rise in both the number of patent brokers and patent packages.

The Author

Kent Richardson

Kent Richardson counsels clients on a variety of patent and business matters including patent buying, selling, licensing, valuation, prosecution and operations. Kent has licensing and marketing patent portfolio experiences resulting in more than $600M of patent license bookings. Kent has served as an expert witness on patent monetization and licensing practices in cases in England and the United States. Prior to founding the ROL Group, Kent was the General Manager of ThinkFire Services USA, Ltd’s Silicon Valley office. Kent has worked in various senior management roles with such growth businesses as Sezmi, Constellation Capital, Rambus, Numerical Technologies. Kent is a member of the California Bar and a United States Patent and Trademark Office registered patent attorney, and holds five US patents.

Contact Kent via e-mail at kent@richardsonoliver.com, or the Internet at Richardson Oliver Law Group.

Kent Richardson

Erik Oliver counsels clients on patent, licensing and trademark matters. He brings more than ten years of patent prosecution, litigation, and licensing experience and a track record of millions of dollars in both patent and technology licensing deals. Prior to founding the ROL Group, Erik was a Vice President at ThinkFire Services USA, Ltd’s Silicon Valley office. Erik has held various senior positions with a range of responsibilities at Rambus Inc., Synopsys, Inc., and a number of Silicon Valley startups. Erik is a member of the California and District of Columbia Bar and a United States Patent and Trademark Office registered patent attorney.

You can reach Erik via e-mail at erik@richardsonoliver.com, or on the Internet at Richardson Oliver Law Group.

Kent Richardson

Michael Costa acts as the ROL Group's financial, engineering, and market analyst. His background in engineering and consulting allow him to bring a blend of business knowledge and technological understanding to our clients. Prior to joining the ROL Group, Michael worked as an independent financial and strategy consultant for Silicon Valley startups. He has helped companies analyze their business and technology opportunities in crowdfunding, mobile advertizing, home automation, green systems and power management, InGaAs semiconductors, and digital signal processing.

You can contact Michael via e-mail at mcosta@richardsonoliver.com, or via Internet at Richardson Oliver Law Group.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 4 Comments comments.

  1. angry dude April 10, 2017 11:57 am

    I call bs on this piece

    Patent market is dead and cold

    Absent some drastic draconian measures applied to some willfull efficient infringers out there there won’t be any changes for good

    The doc said ‘to the morgue’, to the morgue it is!

  2. Gene Quinn April 10, 2017 12:18 pm

    Angry dude-

    You can believe whatever you want, but you are wrong. As long as you understand that fine.

    Kent and his team have done a large number of deals even in this market. So why don’t you just try and learn something rather than demonstrating that you don’t know what you are talking about?

  3. angry dude April 10, 2017 2:48 pm

    Gene @2

    “Kent and his team have done a large number of deals even in this market.”

    What kind of deals ? Some closed corporate patent portfolio transactions ?
    How is small patent owner supposed to benefit from this “market” ???

    It’s analogous to abolishing all real estate transactions below e.g. 1 mil and then claiming great real estate market for trumps of this world

    BTW, the (in)famous Ocean Tomo now ICap brokerage has evolved from open patent auctions (real market) to some closed corporate deals with unknown participants and amounts paid (bs market)

    I understand very well all the corporate machinations and misrepresentations (aka lies) they are all about but it’s useless knowledge to a small patent holder

  4. Henry Morgan July 7, 2017 10:28 am

    I don’t understand the problem here – why are you being called out on this? And why do folk have such a strong opinion on the state of the game.

    As an English man – with skin in the game, so to speak – I found this a good read and want to thank you for the time and research you’ve put into this.

    Personally, I look forward to this year’s edition.