The value of a patent or a patent portfolio in the broader patent market, for better or worse, is in some very basic way related to the likelihood that it can be successfully monetized. No matter how interesting or groundbreaking the innovation, patent value is a function of monetization potential, and monetization potential is dependent upon the enforceability of a patent in litigation. For whatever reason, if a patent is not likely capable of being enforced it presents no real risk and cannot be monetized for anything other than pure nuisance value.
Even under the best of circumstances the value of any one patent, not to mention the combined value of an entire patent portfolio, is often shrouded in mystery. The lack of transparency associated with reporting on IP transactions can frustrate even the best attempts to identify market norms, which leads to high profile outlying events sometimes being disproportionately weighed by those not intimately familiar with the business side of the patent marketplace.
Further confounding matters is the ever shifting IP law and policy landscape in the US, which has caused an uptick in patenting activities in Europe and China, as well as fresh looks at foreign markets and foreign patent portfolios. The changing landscape in America has altered business models and monetization strategies associated patents worldwide.
But there is some good news. While patent portfolios are entering the market other patent portfolios continue to leave the market having been purchased. Asking prices seem to have also reached an equilibrium point, according to Kent Richardson of the ROL Group. There are buyers on the market looking for good portfolios, both tech companies who themselves have thin patent portfolios who are looking to back-fill their portfolios. Some non-practicing entities that had previously left the market have also started to come back as buyers over the last 12 to 18 months, at least kicking tires and strategically acquiring where the assets are strong and the price is right.
Meanwhile, U.S. based Unicorns, which are Silicon Valley based start-up companies that have a valuation in excess of $1 billion, continue to have few patent assets. According to research done by Efrat Kasznik at Foresight Valuation Group, a full 30% of U.S. Unicorns have no patent assets at all, while another 21% have fewer than 5 patent assets. Eventually, if these Unicorns succeed there will come a time when they will almost certainly need to acquire patents. That was the case with LinkedIn and Twitter, for example. Both LinkedIn and Twitter had small patent portfolios relative to the industry and ultimately were forced to buy patents. But have these Unicorns missed the best patent buyers market we have seen in more than a generation? Will patent requirements for these Unicorns begin to drive value up?