This is part 1 of a 6-part series on Richardson Oliver Insights’ 2018 Patent Market Report.
“The patent market has fully stabilized and prices are rational,” said no one ever. Total dollars transacted increased while prices of single-asset deals dropped significantly.”
Two years ago, we told the story of a patent broker who said: “This market keeps on getting worse; the case law keeps on coming out against patent owners; the prices keep dropping. This job keeps getting harder.” We replied: “Our data says that you did pretty well last year.” “Right,” the broker conceded. “Last year was our best year ever …”
This is truer now than ever before. Many of the metrics by which we analyze the patent market have been focused on the price of a single patent, a patent family, or even a group of patents in a package. But this leaves out a key market statistic: volume. As the market matures, we see: prices stabilizing across listings, buying and selling programs becoming more streamlined, and more transactions overall. The market is up, with more sales and more participants than ever before. While average asking prices dropped again, this drop was mostly due to single-asset prices normalizing to the pricing of the rest of the market. Meanwhile, listings, sales, and dollars transacted have all increased. The market continues to grow.
This is our seventh year reporting on the secondary patent market. Every year we find the market changing in different ways, but the big transformations of the last two years have been increasingly positive. When digging into the details, the impact of these developments becomes more pronounced. We will be covering the broader market factors, including:
- sales increased to $353 million from just shy of $300 million;
- asking prices initially drop a staggering 30%, but much of the drop can be attributed to single-asset packages;
- software sales continue to dominate, accounting for 57% of the 2018 brokered market sales;
- old deals are continuing to sell – multiple packages sold even though they had been on the market for three plus years;
- litigation threats from sold packages continue to rise, if you have not considered a defensive aggregator, you should; and
- more consistent price expectations are improving the market’s function and transparency.
This year, we wanted to put our analysis in perspective. For many of the sections, we are going to look at the numbers from the viewpoint of a particular participant in the brokered patent market. Of course, these statistics are valuable information to all participants, whether you are a buyer, seller, broker, or simply observing and trying to optimize and value your own patent portfolio. In all cases, every participant should be looking to optimize and systematize their approach to participating in the patent market.
If you are a buyer and receive five packages every business day, you need to know what is in each package, who delivered it, what conditions were associated with the sale, and then quickly determine if there is a strategic case for purchasing it. If you are a seller, you want to track what is selling, to whom, and at what price in order to maximize the sales potential of your packages and efficiently contact buyers. Using market data, you can also make intelligent and economic decisions on patent strategy such as: buy vs. build or monetize vs. abandon.
This is why we started tracking the entire market. Our desire for efficiency prompted us to look for optimizations. We have built systems that track over 160,000 assets across more than 7,300 deals. These assets are from 2,700 sellers and represent filings across 80 jurisdictions. There is a lot of data to review.
Adding up the asking prices of all the assets in our database leads to $16.7 billion of patent assets. We have written programs to parse the assignment records and have identified $5.3 billion of that market as sold. In 2017, we predicted that through 2018-Q3 we would observe at least $3.75 billion transacted; the market blew those numbers away. This is an extremely active market.
Figure 1 shows the market we have tracked for the past seven years. We include both private and public packages and try to determine an overall total dollar value for the patent market. Our visibility into private packages is limited to packages on which we have worked. That said, the dollar value of the market is surprisingly large and diverse.
Figure 1 also shows an extrapolation of the market through 2019-Q3. Between about $1.5 billion and $3.75 billion in new potential packages enter the market every year. The sales data as of 2018-Q3 includes only sales for which we have identified an assignment document. Projecting through 2019, we expect cumulative total sales to reach over $6 billion.
If you are looking to buy patents, the first thing you have to do is determine who has them and who is willing to sell them to you.
In many cases, this is where patent brokers come in. They are consistently able to find the most diverse sets of patents from a variety of sellers. But, like the real estate market before the advent of such tools as the multiple listing service, Zillow, and Redfin, each broker only has visibility into their own listing portfolio. Only those who know multiple brokers, have non-disclosure agreements in place with each of them, and have the money to buy patents can access the full market information including thousands of patents for sale; otherwise you can only see what your broker does. But, as in real estate, brokers experienced in the market bring a substantial value to both buyers and sellers, particularly for those companies with less experience participating in the patent market.
Brokers offer a unique skill set, including:
- filtering patent assets to identify which ones to sell;
- selecting viable sellers and buyers;
- screening patents and identifying those which are important, as well as their claims (this can be crucial for cutting diligence costs by allowing buyers to focus on the most important parts of a package first);
- providing pricing guidance;
- providing guidance for sellers with regard to sales terms and timelines;
- defining the process for diligence, bidding and sales;
- developing evidence of use (EOU) materials; and
- negotiating on pricing.
Brokers also bring another invaluable skill to the table: the unashamed ability to get deals done. Many have networks of potential buyers numbering well into the hundreds. For a buyer, they actively seek out assets for your specific buying needs; and for sellers, good brokers can manage the sales process when only a small portion of potential buyers may have any interest. When we help a client evaluate whether they should work with a broker or sell directly, we look to see if that client’s skill set and experience is similar to those of brokers. Often, these are skills found in a company’s corporate development department.
The total number of brokers this year remained consistent with 2017 at 56 (in 2017, the figure stood at 54). Two years ago, with 74 brokers, we predicted that some would leave the market and that the concentration of packages across brokers would increase; this happened, but the number of brokers seems to have stabilized. On average, brokers listed 9.9 packages each, up from 8.7 two years ago. This year, “for sale by owner” listings have also decreased and now account for 5.9% of the packages on the market. It is possible that some private buying programs, such as Allied Security Trust’s IP3 program, are becoming a larger share of the marketplace for individual inventors who do not use a broker.
While the number of brokers has remained fairly consistent, the concentration of market share has continued to skew towards a handful of brokers. A small group of brokers continues to bring the majority of the packages to market: 14 brokers brought ten or more packages to market, up from 11 brokers two years ago. This year 83% of the packages were brought by brokers who listed five or more packages (up from 78%). The top four brokers accounted for 50% of listed packages, which is a large increase from 41% two years ago (35% in 2016). It is unclear how much further the market share can concentrate.
As in previous years, we see little technology specialization among brokers, with the exception of some brokers affiliated with semiconductor reverse-engineering houses and others which focus more on hardware.
Figure 2 shows the relative success of individual brokers (each broker being a dot). The X-axis represents the number of packages brought to the market during the measurement period. We used the 2017 calendar year for this analysis in order to allow sufficient time for sales to close and be recorded. The Y-axis represents the sales rate or closing rate for that broker (how many packages sold). Up and to the right is better. As shown in Figure 2, there were a few brokers who were particularly successful (green circles) or unsuccessful (red circles). Unlike two years ago, one broker who brought a large number of packages to market was able to sell those packages at an above-average sales rate.
Simply put, selling patents is not easy, but some brokers are having more success than others. Of packages listed in the 2017 calendar year, 13.5% have sold, showing an increase from two years ago in the same timeframe (10.9%). When looking across multiple years, overall sales continue to climb (see Figure 3). The sales volume for the 2018 market year is significantly above average. (Note our 2018 market year runs from June 2017 through May 2018.) And, the number of sales occurring in 2018 may grow further low due to delays in the recordings of assignments (2018-Q2 in particular). The best sales quarter since we began tracking the market was, easily, 2017-Q3 (the second quarter of the 2018 market year). We will discuss sales rates in further detail below and continue now by looking more at the 2018 market year.
Other Market Opportunities
There continue to be new ways to buy or sell patents, some combining the current skills of brokers with platforms, others are completely new models.
- IAM Market is a market provided by IAM where sellers can list their patents and anyone can browse the packages, contact the sellers and close patent purchases;
- IP3 by Allied Security Trust (AST) is a fast-close patent buying program run by AST. Sellers list their assets for a set price, AST member companies decide to purchase or not, all on an accelerated schedule;
- UP3 by Uber Technologies is a program similar to IP3 but run by Uber; and
- Provenance Asset Group sells exclusive licenses to patent families from a large pool of patents Provenance controls. The licenses are annual and allow companies to counter-assert against large corporate patent asserters. Provenance is also selling a large number of packages (2,300).
None of the packages listed through these programs were included in our overall dataset. IP3 and UP3 are private buying programs. The IAM Market data is included in the overall market size. Provenance’s assets, like we do with big packages (200 or more assets), were excluded.
In part two of our report, we will discuss patent brokers and patent packages.
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