Posts Tagged: "valuation"

IP portfolios are business assets. The payment of patent annuities is an important part of ensuring a valuable IP portfolio is primed for monetisation. Efficient IP management demands lots of time, attention and cost – particularly if portfolios are directly managed by patent offices around the world. Many patent holders elect external IP renewals teams to carry the administration, manage patent renewals and offer insight into which patents should be abandoned.

Ashley Keller: “However, when you do infringe a patent, even if it was efficient for you to do so, the upshot should be you have to pay. You have to pay a reasonable royalty associated with that infringement so that the innovator who came up with the innovation can also be compensated for the research and development that they did to generate that innovation in the first place. So efficient infringement existence, in and of itself, is not the concern for me. The concern is it is now legally possible, I think in many circumstances, for someone to not only be an efficient infringer but also to get away with infringing and never paying and that is problematic from a societal perspective because it will dramatically reduce the returns to R&D and society will lose out on the advancement of technology that R&D inevitably produces.”

Join Gene Quinn and Ashley Keller on Wednesday, September 28, 2016 at 12pm ET for a discussion on the current state of patent value. We will take your questions, as well as discuss the following: (1) Patent eligibility at the Federal Circuit; reasons for hope. (2) The outlook for innovators and patent owners in Q4 2016 and Q1 2017. (3) Patent Reform: what is likely to happen and how could it impact value and monetization strategies.

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.

What causes operating companies to sell their patents? Our intuition tells us that patent sales take place when the seller is in financial distress or the company is underperforming. We asked ourselves whether data aligned with our intuition… 71% of the sales occurred when the seller underperformed the overall market by more than 5 percentage points.

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.

The reason it matters as to whether we patent folks can speak non-patent speak is that those who make the decisions about patent value, i.e., corporate C-Level and above, do not speak or grasp patent speak, and instead rely on our guidance to make informed judgments about business and capital commitments. We sadly cannot communicate (think Raj on Big Bang, in the early episodes, around females) and, worse, even if we could, we are not even in the meetings where the decisions are being made. Look at any Org chart: We are often kept at more than arms length by General Counsel or who ever it is that patent counsel report to – solid or dotted line. In short, our fate, and the fate of our life’s work, is being decided by others, without benefit of our thoughts. Tragic, and a real business mistake.

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.

If you were buying patents in 2015, you likely did better than any previous year. The patent market, and, in particular, the brokered patent market, continues to be a robust market for buying and selling patents. Prices are down unless an EOU is available. Sales rates are up, and sales are tending to happen earlier. Caselaw impacted the market but not as much as you might have expected (Alice impacted fintech patents much more than software patents). With an estimated $233M in patent sales, we think the patent market will continue to provide interesting opportunities for both patent buyers and sellers.

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.