Posts Tagged: "Richardson Oliver Insights"

When discussing potential patent purchases with buyers, we continue our push to end the use of the phrase “low quality” to broadly characterize rejected patents. We often hear that there are junk, low quality or weak patents on the patent market. Clearly, there are some patents that we can objectively agree are low quality, just as there are in most portfolios. However, buyers with an efficient buying program should never test the majority of patents for “quality” metrics (e.g. enforceability) because these tests are simply too expensive. Sophisticated buyers create targeted buying programs rather than general ones. When buying, you should have a use case in mind and analyze the value of the patents in that particular context. If you want patents to counter assert against Qualcomm, do not waste time and money evaluating clean energy patents. The “quality” of anything in that technology area is irrelevant. Buyers also tend to conflate quality and value when discussing packages. A package with no value to you for your particular business use should be rejected from your buying program, but again, this is not a comment on the quality. It is easier and cheaper to reject a patent for lack of value that to analyze it for quality. Necessarily, a well-run buying program has visibility into only a small set of the available packages on the market; for the rest of the packages, the program should have no visibility into the quality of the packages because the packages were rejected before any quality metrics were evaluated.

In any market, pricing is where the rubber meets the road. As a buyer, you will not be taken seriously if you significantly underbid, yet you want to get a fair price. Conversely, if you are a seller who will not negotiate near the market price, it will be almost impossible to close a deal. We understand that patents are definitionally unique, have varying relative strengths and market applicability, and also that the demand for patents varies by technology area and many other factors. But when it comes down to it, you have to have a place to start. This is where average pricing statistics become useful. And to every seller who says: “My patents aren’t average, so average pricing should not apply to me,” we respond by saying: “We’ll accept that as true, you just have to show us why.” In the vast majority of cases, starting with the average price and moving up or down from there is an effective way to set a price for buyers and sellers. In 2018, the average price per asset shifted significantly: it fell by 30%, from $176,000 per asset to $123,000. The asking price per U.S.-issued patent also dropped by 30% from $251,000 to $176,000. If you are a seller and these were the only facts you had, it would look like it’s time to panic. But this is not the whole story. The drop was primarily due to an adjustment in the asking price for single-asset packages. For most package sizes, the asking price did not change at all. Figure 8 shows the asking prices per asset across packages of different sizes. In the 2017 market, there was a massive premium on single-asset packages. In 2018, the price for single-asset packages dropped by 56% and came more in line with the pricing for other package sizes. This drop in single-asset prices accounts for 48% of the overall drop in per-asset prices. The asking price in the 26-50 asset range also dropped significantly, while the price for 6-10 asset packages went up.

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.