Posts Tagged: "ip valuation"

Patent investors are no different than investors in any other asset class. They abhor uncertainty and charge a stiff premium for risk. In the wake of the AIA, the cloud of uncertainty hanging over patents is dark indeed. This uncertainty has depressed the value of patents and the returns to research and development, and may have broader ramifications that are yet to be seen… Like so much well-intended regulation, the AIA may have undermined the very system it was aimed at improving. While well capitalized players may be able to ride out the current storm—or even take advantage of it—many others have been irrevocably harmed by these changes.

Companies at the cutting edge of their industries have realized the immense value of their patent portfolios and are still trying to make the most of that value – but it is not easy. A semiconductor or electronics company can have tens of thousands of patents; finding the patents that are the most valuable is one of its biggest problems. These patents are needed to determine the strategy for patent sale, licensing or litigation, and without them the company is basically stuck and can’t move forward. The process is like sorting the grain from the chaff.

It’s this environment of malaise within which Yahoo is trying to bolster its fortunes with the sale of an intellectual property portfolio involving about 3,000 patents and patent applications which the company recently reassigned to a subsidiary known as Excalibur IP. Some of the patents in this portfolio date back to the company’s initial public offering in 1996 and news reports from The Wall Street Journal indicate that some expect the portfolio to fetch a price in excess of $1 billion… “If this sale had happened before Alice, the valuations would be multiples higher,” said Michael Gulliford of Soryn IP Group. Another factor mentioned by Kent Richardson (ROL Group) was the fact that the so-called smartphone patent wars have largely ended so the patents in related sectors are not as important from a defensive standpoint.

An organization’s overall IP strategy should support business strategies and help increase the value of the company. IP strategy will be different depending on the business and market. Value is not always about how much money can be generated by patents. Companies may want to motivate employees; attract customers, attract business partners or investors; protect existing products and the ability to improve them in the future; block or intimidate the competition; license to improve market penetration, generate income or gain access to third-party technology; improve their return on investment, or generate income or savings through joint-ventures, mergers and acquisitions, or investing in start-ups, among other strategic IP goals. Truly valuable patents are rare. Studies show that fewer than 5% of patents in a typical technology patent portfolio are valuable. Finding these rare valuable patents in a large patent portfolio is a challenging task.

Today’s pace of innovation and competitive intensity demand greater protection of new ideas and inventions. Yet intellectual property (IP) management is not a high business priority for many companies. Organizations that fail to recognize IP as a strategic asset put their competitive advantage and profit margins at risk. Companies can circumvent these potentially adverse impacts by maximizing the value of their creativity. Prioritizing and protecting IP assets helps organizations stay in front of competitors and drive greater growth.

Business Insider reports that Yahoo’s patent portfolio could generate up to $3B. We disagree and we use data to show why. With an estimated street price of $772M (high of $1.15B, a low of $393M), Yahoo has a valuable asset, just not a $3B asset. We often see patent prices stated without any data to back up the analysis. We think this needs to change. Below, we show how a quick analysis of Yahoo’s portfolio and the patent market leads to some bounds on the street price of the patents.

Intuitively, family size and diversity of international filings should be good indicators of value. We hypothesized that like independent claim count, the investment to produce a larger patent family and file international patents would correspond to greater value. However, we found the impact was less significant than even the word count of claim 1 – only a 10% contribution to the overall weighting.

A patent litigator knows the ultimate truth about patents: their real value is only revealed in the gauntlet of litigation. In a bygone era, patents were reputed to have a statutory presumption of validity, the power to exclude by way of injunction, and the capacity to yield treble damages if an accused infringer were so wanton as to disregard a notice letter and fail to obtain an opinion of counsel. It was often unnecessary for a patent holder to flex its muscle by bringing suit to enforce its intellectual property rights. Instead, the arms-length Georgia-Pacific theoretical license negotiation might well have occurred even before the commencement of any infringement. Those days are over.

Topping the list of US Unicorns (a pre-exit startup with a valuation exceeding $1 billion) are high flyers like Uber at $51 billion and Airbnb at $25.5 billion, followed by companies that are mostly concentrated in three industries: Consumer Internet, E-commerce and Software. Overall, we found out that 30% of US Unicorns have no US patent assets at all! About 62% of US Unicorns have only 10 or less (issued and pending) US patents in their name; these companies account for more than $157 billion in collective valuation and $25 billion in combined funding.

To a large extent the meaning of the term depends on your viewpoint, but for a patent owner patent quality is all about value. Indeed, from the patent owner’s perspective it is virtually impossible to divorce patent quality from patent value. This should hardly be surprising. A patent that is guaranteed to have only valid patent claims but which is extraordinarily narrow may be a quality patent in the eyes of some, but commercially useful it will not be. Thus, from the standpoint of a patent owner patent quality must necessarily be a function of value.

Techniques for valuing intellectual property continue to develop, especially as access to information becomes easier and more efficient. The practice of valuing intellectual property has only been around for the past few decades, during which time the practice itself has grown and refined. The decision of which approach to use is generally based on four factors: (i) how unique is the asset; (ii) how much data is available and verifiable; (iii) what is the context, purpose or objective of the analysis; and (iv) the judgment of the analyst which (one would hope) is based on extensive earlier experience. In addition to the traditional methods used to value intellectual property, several alternative methods are available. Some are modifications of the orthodox approaches with which most are familiar, but many other choices exist to value these complex assets.