Time to Get Back to Business

There’s no question the IP licensing market slowed down in 2014, but savvy companies are taking advantage of today’s market uncertainty to strategically buy and license IP assets.

This uncertainty is due to a number of well publicized factors. The industry spent the first half of 2014 awaiting the Supreme Court’s decision in the controversial Alice v. CLS Bank decision. Once the Court announced its decision in June 2014, the industry spent the second half of the year analyzing its impact, particularly its impact to the Inter Partes Review process. Although the IPR provision in the America Invents Act admirably intended to increase efficiency by weeding out patents that shouldn’t have been issued, it has instead dramatically decreased efficiency and disrupted the objective patent valuation methods historically used throughout the industry.

We no longer have the predictable path to a patent license where the prospective licensee asks: What do you have? Is that patent any good? Do I infringe it? If I infringe it, is that infringement worth a whole lot of money? Traditionally, you would begin conversations, then proceed to negotiations, then maybe disagree on price or valuation or terms in negotiations, and that might proceed to litigation, and if it proceeded to litigation you would have discovery and then a Markman hearing and potentially a trial. At each of these stages of the engagement, both parties would gain greater clarity on the objective value of the patent(s) based on the additional information shown and/or court decisions. And all that predictability and objectivity and certainty is now gone.

With so much uncertainty and subjectivity in the market, it was quite logical in early 2014 for patent professionals to adopt a “wait and see” strategy.

* Wait and see how and when the shake-out in the IPR process would stabilize.

* Wait and see how far petitioners could push the boundaries of the IPR process.

* Wait and see what patents would survive the Alice standard.

* Wait and see what would happen with the various patent reform proposals.

While some companies continue to wait and see, we saw a dramatic shift in late 2014. The most sophisticated companies on IP matters used the uncertainty to their advantage. They hypothesized the market couldn’t get much worse, and since they would eventually need to engage in licensing discussions, they used the negotiation leverage they had during a slow market to get the best deal. Similar to a “buyer’s market” in real estate, the IP market was (and continues to be for some) a licensee’s market as many companies sit back and wait to see how the uncertainty will shake out.

The IP-savvy companies who took advantage of the licensee’s market were making the best strategic decision for their companies. They realized patents are a critical part of our economy, and they assumed patents will continue to exist and the market will eventually correct itself.

Once these market leaders renewed their licensing activity, we began to see the rest of the market emerge from its hibernation. The companies with less in-house IP expertise are wisely looking for leadership and signals from the IP-savvy companies, and they are now beginning to follow suit. This momentum is steadily growing in the IP-intensive technology markets, and beginning to expand into other “long tail” markets outside of the traditional tech industries such as automotive, medical devices, and financial services.

Ford Motor Company is an excellent example of this, they signed a license to the Intellectual Ventures portfolio in February 2015. They realized customers increasingly want state-of-the-art technology in their cars in order to stay connected with their professional and social networks whilst on the go. And this requires maintaining access to a wide array of relevant patents, not traditionally available in the automotive space.

Overall, the market is definitely improving and we are on our way back to a healthy, stable IP market with objective, consistent valuation mechanisms. But it will take time, and the path will be bumpy. There is still a lot of chaos in the market – from misunderstood rules, to rules that are being tested, to PTAB challenges using the Alice standard, to fee shifting – and everything in between.

I do believe some sort of correction in behavior across the board for everyone who decides these issues will happen. Whether through Congress, the Supreme Court, the Court of Appeals for the Federal Circuit, the Patent Trial and Appeal Board, or the USPTO, the market has several mechanisms to stabilize its current volatility. If not, we are in danger of significantly damaging our patent system, which will have a severe long-term effect on the economy.