Richardson Oliver Costa - Analysis of the Patent Market 2015 20151207

Business Sense • IP MattersBusiness Sense • IP Matters 1

Patent Market 2015 – Buyers, Sellers & What Are They Paying?

Kent Richardson, Erik Oliver & Michael CostaNovember 23, 2015

Contact Information:+1 (650) [email protected]

Copyright 2015 ROL

Business Sense • IP Matters 2

Agenda

Solving the Patent ChallengeCase example of building and buying patents to address the challenge

Patent Market Trends and ForecastThe brokered patent market

Market prices for patents today and trends

Who is buying and who is sell ing

What about Alice?

How to Buy Effectively?Corporate patent buying overview

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Business Sense • IP Matters

Case Study: Why Trade in Patents?

The story of OurCo – the challenge

• OurCo’s revenue grew very quickly (from $<50M to >> $1B) in the course of a few years• Successful IPO• Revenue continues to grow

• Almost no patents (< 50)• Patents were not pursued and were not a strategic focus

• OurCo faced the risk of defending against significant patent assertions• NPEs (IV, small NPEs)• Corporate patent asserters (e.g., IBM, Microsoft, Qualcomm …)

Examples Companies With Similar Challenges

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Typical Patent Defense Considerations

OurCo’sPatents

OurCo’sRevenue

Asserter’sPatents

Asserter’sRevenue

Company to Company

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Patent asserter’s goals

• Revenue generation• Create freedom to operate – remove patent risk• Strategic/business interference

Primary consideration in patent asserter’s decisions

• How do the asserter’s patents apply against OurCo’s revenue• How many patents can I say OurCo infringes?• How many patents does OurCo have against me? Revenue impacted?• Overall portfolio size/quality/growth of both companies


OurCo’s Ecosystem of Patent Risk

Patent threats come from OurCo’s near ecosystem What is OurCo’s business ecosystem?

Competitors

Customers

Suppliers

Partners

OurCo

Corporate asserters

OurCo’s potential patent risk

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OurCo’s Ecosystem of Patent Risk - Filtered

OurCo’s potential patent risk

?? ? ?? ? ?

OurCo

Which risks is OurCo going to address?

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OurCo’s Patent Strategy Planning and Execution

Planning

• Ecosystem risk analysis• Identify target organic patent development and

patent purchase technology areas• Develop budgets and authorization process

Execution

• Substantial increase in organic filings• Directed patent purchasing program to fill in gaps in

OurCo’s counter-assertion portfolio• Ongoing continuation practice of current portfolio

0

100

200

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600

Portfolio

Internal Purchased

T=0 T=4 years

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?


OurCo’s Patent Strategy Actuals

Organic patent

• Growth of >1000% increase in new filings versus T=0• Idea harvesting sessions increased• Internal evangelizing• Inventor recognition increase• Internal capabilities for managing the flow of new inventions and new filings

Patent purchases

• More than 250 patents purchased• Strategic purchases

• Failed high profile startups• Brokered patent market• Private corporate sellers

• Bulk purchases• Large purchases from select corporate sellers

0

100

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600

Portfolio

Internal Purchased

T=0 T=4 years

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Case Study: OurCo Addresses Patent Deficit with Bought and Organic Growth

OurCo Recognizes Its Strategic Patent Challenge

Effective Organic and Patent Purchase Addresses the Challenge

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Patent Assets at T=0

Internal

Priority

# of

Ass

ets

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Patent Assets T=4

Internal Purchased

Priority

# of

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Copyright 2015 ROL

~15 year span ~15 year span


Agenda





What about Alice?


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Patent Buying Ecosystem

Patent Market

Buyers• Apple, Amazon, Facebook,

Google, Intel, Microsoft, Qualcomm

• Intellectual Ventures, Acacia• RPX, OIN, AST, Unified Patents

Sellers• SMEs, Cisco, Yahoo!,

ATT, Verizon• Intellectual

Ventures, AST, RPX

Deal Makers & Brokers• Richardson Oliver Law

Group• Patent Profit, Epicenter, ICAP• Bankers, law firms, IAM

managers

Copyright 2015 ROL


How Big Is the Patent Market?

Robust market – Nearly $7B of patent deals tracked

• Since 2011, we have tracked $4.5B of brokered patent packages + $2.4B of non-brokered• Over 2,000 packages with over 63,000 patent assets• 118 technology categories represented from LEDs, Displays, Social Networks, Automotive

2015 market remains robust

• 566 brokered packages received containing nearly 9,000 patent assets

Cumulative Asking Prices of Brokered Data ($M)

• Source Richardson Oliver Law Group LLP, 2015 Brokered Market Report

Copyright 2015 ROL

2011-Q1

2011-Q2

2011-Q3

2011-Q4

2012-Q1

2012-Q2

2012-Q3

2012-Q4

2013-Q1

2013-Q2

2013-Q3

2013-Q4

2014-Q1

2014-Q2

2014-Q3

2014-Q4

2015-Q1

2015-Q2

2015-Q3

$-

$1,000.00

$2,000.00

$3,000.00

$4,000.00

$5,000.00

$6,000.00

$7,000.00

$8,000.00

Total Asking Prices ($M) - Brokered and Private Market

Total Asking Price Unsold Total Asking Price Sold


Introducing the Brokered Patent Market

Why the brokered patent market?

• Quasi-public market for patents supplied by patent brokers and regular sellers• Patents are business assets and trading in them is a natural extension of patent strategy

complementing business strategy• If patents can be traded, a value and price can more easily be defined

Why study the brokered patent market?

• It’s where patents are assigned a price• Market dynamics are not well understood – clients want to answer these questions:

• Am I getting a good price?• Are these good deal terms?• Are there better patents available?

• Few companies have substantial information about the market, which gives them an advantage• NPEs have more information - Intellectual Ventures, Acacia

Copyright 2015 ROL


What Is in a Brokered Patent Package?

Typical package

• Contents• List of patents for sale, applicable market, infringement analysis (claim chart), background on the seller

• Additional information• Asking price, bid dates, special circumstances (license back, specific encumbrances)

Example package from Patent Profit (Will Plut)

• Confluence Patent Portfolio• Single family (15 US Patents and 7 open applications) relating to social network data aggregation. • 2006 priority date.• Received July 2013• Sold October 2014• Asking prices: “7 figures”• Multiple claim charts presented for

• Apple• Google• Facebook

• Purchased by an operating company• Fingerprint Cards AB

Package flow

• Receive about 50 packages per month covering a broad range of technologies

Copyright 2015 ROL


2015 Market Pricing

Asking Price $KTop and bottom 5 data points from

each set removed

Per Asset Per US PatentAverage $189.88 $276.68 Min $16.95 $30.00 Max $925.00 $1,000.00 StdDev $183.18 $249.29 NumData 430 423

Market pricing

• Prices are down about ~$50K• But, sales rate is 23% ahead of comparable period last year• Prices vary substantially by package size

Copyright 2015 ROL


It’s a Great Time to Be a Buyer!

Asking prices are down

• 2015 asking price $190K per asset, down from $269K in 2014• More lower priced deals in 2015 drops the asking prices• Market is becoming more efficient at selling low price packages, plus prices are dropping

$190K



Pricing Focus Brokers favor the $250K-to-$2M price point

<$250K $250K-500K

$500K-1M

$1-2M $2-4M $4-10M $10-20M $20M+0

20

40

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140

57

66

133

79

3340

13

2

Distribution of asking prices, top and bottom 5% removed

Bulk pricing kicks in with > 20 assets

1 2 to 5 6 to 10 11 to 25 26 to 50 51 to 100

101 to 200

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Per Asset Asking Price by Package Size (# Assets)

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2015 Average Asking Price per US Issued Patent by Tech Category (US$)

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Pricing by tech category

• Tech pricing is important for making buying decisions• Business process (Financial Technology) related patents still demand price premiums • Source Richardson Oliver Law Group LLP, 2015 Brokered Market Report


Asking Price $K With EOU Top/Bottom 5% Removed

Per Asset Per US Patent

% EOU Packages Asking Price vs General Market 134% 123%

Average $255.00 $340.58

Min $22.73 $41.67

Max $1,000.00 $1,142.86

StdDev $233.12 $270.98

NumData 167 165

Claim Charts (EOUs) Drive Pricing

Claim charted packages maintain their pricing power

• Almost no drop in pricing for claim charted packages• 25% better chance of a sale if there is an claim chart

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Sales Rate Is Up (a Little)

Sales rates are up slightly, but still below 30%

• Represents the percentage of patent packages sold (as recorded in the US Patent & Trademark Office assignment records)• Sales rates remain down sharply from 2009, with estimated 2014 packages slightly higher• Packages sell in the first two years sales data lags listing data by about 2 years

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Buying Patents Faster is an Advantage

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 210%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Cummulative % Sales 2014 by Months from Receipt Date

Advantage to Buy Here

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Distribution of Seller Type by Sale Year

Operating companies dominate the market

• Operating companies represent over 71% of the patents on the market• NPEs have substantially increased their sales up from 11% to 16% - likely

as a result of difficulties enforcing their patents• Companies obtaining cross-licenses prior to competitors selling their

portfolios will continue to benefit

Top Sellers (All Years by Package Count)Alcatel LucentAllied Security Trust (AST)ATTBAE SystemsETRIFujitsuHPItalian National Research CouncilKorea Institute of Science and Technology (KIST)RPXSiemensSony CorporationSpansionVerizonXerox Corporation


2014 and 20150%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Distribution of Seller Type by Sale Year

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Who Sells to IV (Fund I & II)?Ordered by Number of Patents Sold (at least 30 sold)

Top 20 Next 20 Next 20 Next 20Kodak Nortel Recursion Software MosaidDigimarc Cubic Wafer Hong Kong Technologies LapisNXP Genesis Microchip Nippon Steal CasioRaytheon Marconi IP Fujitsu ThalesMangachip Delphi Chunghwa Picture Tubes Alcatel-LucentTelcordia Verizon Sonic Dowling ConsultingTransmeta Aplus Flash AT&T Lockheed MartinSpyder Navigations Autocell Katrein-Werke Pulse-LinkAmex Crosstek Capital California Inst of Tech Lightspeed LogicPolaroid Tier Logic Be Here PSS SystemsCypress Semi Mindspeed Technologies Digital Imaging Systems DuPontDaimler Cirrus Logic Ideaflood Lightsmyth TechFrance Telecom Kimberly-Clark UMC ST MicroPrimax Electronics Airnet Communications Microsoft RockwellConexant Idelix Software Airip Cooler MasterBAE Icefyre Semi Discovision XeroxSanyo Mitsubishi Motorola ArraycomNokia Neomagic Triquint BelieveBellsouth Oki Electric Terabeam General DynamicsEntorian IPWireless Exclara

Many “blue-chip”/household names among sellers of patents to IV

Implications? How would something like a cross-license impact a future aggregator?

Kent Richardson and Erik Oliver. "What's inside IV's patent portfolio?" IAM Magazine, Issue 66, July/August 2014

Copyright 2015 ROL


Distribution of Buyer Type by Sale Year

Operating companies remain strong buyers

• NPE buying remains a significant part of the market with Intellectual Ventures leading the buying

Top Buyers (All Years by Package Count)Allied Security Trust (AST)Apple ComputerIntellectual VenturesLinkedInGoogleRPXOpen Invention Network (OIN)Qualcomm


2014 and 20150%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Distribution of Buyers Type by Sale Year

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Litigation and IPR Rates – 2014 ListedTotal Listed 2014 Sold Unsold AllPackages 119 512 631Litigated 2014 1 2 3% Litigated 0.84% 0.39% %0.48

Public risks are relatively low

• Patent litigation rate is low for purchased patents, but none public assertions are not shown• <1% from 2014

• IPRs are on the rise• 6 in 2014• 15 in 2015

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IV Has Not Stopped Buying

III Fund buying

• Launched around 2014• Purchased technologies

• Media storage• Computer memory

• Spansion assets• Rambus assets

• Networking• Cable TV

Fewer purchases

• Buying is less aggressive than Fund I and II• Less capital in Fund III• Concern over inflating the price of patent

• Richardson Oliver Q1 2015 Patent Sales Report

Copyright 2015 ROL

http://www.richardsonoliver.com/news/2015/4/30/sales-on-the-rise-2015-q1-analysis-of-sales-on-the-brokered-patent-market


Some Patent Brokers Consistently Beat the Market Sales Rate

0 10 20 30 40 50 60 70 80 90 1000%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 Broker Sales Rate by Number of Listed Packages

Number of Packages Listed by a Given Broker

Sale

s Rat

e

2014 Current Sales Rate (18%). Projected is 29%

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Surprising Delay in Recording Many Assignments

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 160

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120

140

Number of Months Delay in Recording the Assignment After the Executed Date (All Sales)

Months

A long time to register the purchase!

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Alice and Business Process Sales Rates Are Down Relative to Overall Market Sales Rate

Alice Impacted Patent Packages Still Selling Better Than Overall Market

Business Process Sales Rates Are Down Substantially

Copyright 2015 ROLBusiness process pricing disconnected from sales rate?


Corporate Buying Program - Overview

Primary goal: Defensive counterassertion

• Reduce exposure to corporate patent assertions by building a counterassertion portfolio• Examples of active corporate asserters include IBM, Qualcomm, Microsoft

• New asserters rise, especially when revenues are down

Secondary goal

• Buy patents to reduce the risk that those patents can be used against your company• Other techniques work here too, buying consortium (e.g. AST, OIN, RPX, Unified)

Key challenges

• Agree on qualities for desired patents• Buying criteria anchored with business rules can help filter packages quickly and efficiently

• Cost of diligence• Legal patent diligence can cost $5-50K, other diligence is cheaper and can filter out many packages• Over 98% of the packages will not meet your business needs• Eliminate low value packages quickly

• Bidding and pricing• Management buy-in

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Process Overview: Example Filtering and Relative Diligence Costs

ROL packag

e databa

se

Search results candid

ate pool

Preliminary

human filterin

g

Detailed

filtering

Test availability and

EOU creation

Further

testing

Bidding and

buying

2050 500 100 50 10 5-7 1-3

Packages Remaining

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$ $ $$ $$ $$$ $$$$ $$Relative Diligence Costs


Effective Filtering of Patents Reduces Costs

> 60% packages eliminated because the specific technology does not match the business need

Claim analysis and prior art searches are more labour-intensive and costly and should be delayed• Source Richardson Oliver Law Group LLP, 2015 Brokered Market Report


Conclusions

• Billions of dollars of patents brought to market every year• Total brokered patent market sales is $233M• Private market is much bigger (5-10X

• Diverse technology areas• Asking prices have dropped to $190K per asset, excellent time to be buying• Sales rates remain relatively low at 29%

Patent sales market remains robust

• Organic growth addresses long term strategic challenges• Buy patents allows company could not have invented• Priority dates can pre-date your company’s founding

• Purchased patents are effective for counterassertion• Manage key diligence questions early to drop your cost of finding and buying patents

Focused patent development and buying addresses strategy challenges

Copyright 2015 ROL

Richardson Oliver Costa - Analysis of the Patent Market 2015 20151207

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