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]
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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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Business Sense • IP Matters 4
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
Business Sense • IP Matters 5
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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Business Sense • IP Matters 6
OurCo’s Ecosystem of Patent Risk - Filtered
OurCo’s potential patent risk
?? ? ?? ? ?
OurCo
Which risks is OurCo going to address?
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Business Sense • IP Matters 7
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
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Portfolio
Internal Purchased
T=0 T=4 years
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?
Business Sense • IP Matters 8
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
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600
Portfolio
Internal Purchased
T=0 T=4 years
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Business Sense • IP Matters 9
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
0
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Patent Assets at T=0
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Priority
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ets
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Patent Assets T=4
Internal Purchased
Priority
# of
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~15 year span ~15 year span
Business Sense • IP Matters 10
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 11
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
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Business Sense • IP Matters 12
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
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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
Business Sense • IP Matters 13
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
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Business Sense • IP Matters 14
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
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Business Sense • IP Matters 15
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
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Business Sense • IP Matters 16
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
• Source Richardson Oliver Law Group LLP, 2015 Brokered Market Report
Business Sense • IP Matters 17
Pricing Focus Brokers favor the $250K-to-$2M price point
<$250K $250K-500K
$500K-1M
$1-2M $2-4M $4-10M $10-20M $20M+0
20
40
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57
66
133
79
3340
13
2
Distribution of asking prices, top and bottom 5% removed
Bulk pricing kicks in with > 20 assets
1 2 to 5 6 to 10 11 to 25 26 to 50 51 to 100
101 to 200
0
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100
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Per Asset Asking Price by Package Size (# Assets)
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Business Sense • IP Matters 18
2015 Average Asking Price per US Issued Patent by Tech Category (US$)
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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
Business Sense • IP Matters 19
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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• Source Richardson Oliver Law Group LLP, 2015 Brokered Market Report
Business Sense • IP Matters 20
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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• Source Richardson Oliver Law Group LLP, 2015 Brokered Market Report
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Business Sense • IP Matters 21
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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Business Sense • IP Matters 22
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
• Source Richardson Oliver Law Group LLP, 2015 Brokered Market Report
2014 and 20150%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Distribution of Seller Type by Sale Year
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Business Sense • IP Matters 23
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
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Business Sense • IP Matters 24
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
• Source Richardson Oliver Law Group LLP, 2015 Brokered Market Report
2014 and 20150%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Distribution of Buyers Type by Sale Year
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Business Sense • IP Matters 25
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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Business Sense • IP Matters 26
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
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Business Sense • IP Matters 27
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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Business Sense • IP Matters 28
Surprising Delay in Recording Many Assignments
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 160
20
40
60
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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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Business Sense • IP Matters 29
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?
Business Sense • IP Matters 30
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
Copyright 2015 ROL
Business Sense • IP Matters 31
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 $5-50K, other diligence is cheaper and can filter out many packages• Over 98% of the packages will not meet your business needs• Eliminate low value packages quickly
• Bidding and pricing• Management buy-in
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Business Sense • IP Matters 32
Process Overview: Example Filtering and Relative Diligence Costs
ROL packag
e databa
se
Search results candid
ate pool
Preliminary
human filterin
g
Detailed
filtering
Test availability and
EOU creation
Further
testing
Bidding and
buying
2050 500 100 50 10 5-7 1-3
Packages Remaining
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$ $ $$ $$ $$$ $$$$ $$Relative Diligence Costs
Business Sense • IP Matters 33
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
Business Sense • IP Matters 34
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
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