Patents and Portfolio Value, Up or Down?

Event co-char Abha Divine of Technquity welcomes attendees. Co-chair Phil Hartstein of Finjan (standing) looks on, as David Morland (3LP Advisors) prepares to moderate.

Today I am in New York City at the 2014 IP Dealmakers Forum. This is the inaugural event, and over 190 people are in attendance today. In fact, event organizer Wendy Chou of CHOUmedia, told me several days ago that registration had to be closed early because maximum capacity had been reached. At a time when patents and patents and patent portfolios are under downward pressure as the result of patent reform and case law, this event has arrived at exactly he right time. Interest is very high, and anxiety is as well.

The first panel of the day, titled View of the IP Market and Investment Landscape, discussed the IP markets generally, trends in investments, recent deal activity, evolving business needs and other asset classes and emerging markets, including IP financing in Asia.

David Morland, a partner with 3LP Advisors, moderated the first panel. He lead off the segment by pointing out that in the United States patents are being both applied for and issued in record numbers year after year. He also started the substance of the program today by pointing out that the people who own patents in the United States do not seem to believe that the asset class has been devalued. “Maintenance fee payment rates have raised, particularly with respect to the twelve-year payment, which suggests that those who own the assets do not think they are diminishing in value,” Morland explained.

My own take on this is that it is too early to know whether owners have factored into their decision making the most severe, negative events relating to at least software patents. It certainly seems that investors have factored in the series of events that have worked to devalue patents. But I’m not sure we know whether owners have really factored into their decision making the most recent negative events, at least insofar as maintenance fees are concerned. It wasn’t until the Supreme Court issued its decision in Alice in June 2014, just over four months ago, that rendered tens of thousands, if not hundreds of thousands, of software patents worthless. Maintenance fees should eventually give us an idea, but each of the three payments due at 3.5, 7.5 and 11.5 years after the issue of the patent can be paid up to six-months early and up to six-months late. Thus, I don’t think we can really focus on maintenance fees as an indicator of industry sentiment for at least a year post-Alice.


Of course, it is certainly true that the market should have factored in the negative implications of the America Invents Act (AIA), and the other ill-advised Supreme Court patent eligibility decisions in Association of Molecular Pathology v. Myriad Genetics and Mayo v. Prometheus. But continued payment of maintenance fees may well show irrational exuberance, or eternal optimism that recognizes that the patent system has always swung back and forth toward and away from strong patent rights. Everyone I speak with thinks that we have reached the furtherest point away from strong patent rights and we will over the next several years see a swing back toward stronger patent rights. That being the case, if you are not applying for patents today, paying issue fees today, making maintenance fee payments today, you will not be able to enjoy the inevitable swing back toward strong patent rights when it happens.

Andrew Ramer, who is Managing Director of Cantor Fitzgerald’s Intellectual Property Division, was also on the first panel. “In the old days you were getting deals where big checks were written up front, which huge backends,” Ramer explained. Now what you are buying is a bill, “the calculus has changed.” He would go on to say that if you have to “spend a lot of money to get to the pot of gold at the end I’m not going to pay very much.”

Phil Hartstein of Finjan, co-chair of the IP Dealmakers Forum.

John Lindgren, President and CEO of Conversant (formerly MOSAID Technologies), was also on the first panel. He concurred that “the calculus has changed.” He and others on the panel recognized what everyone in the industry has been speaking about, namely that the market for acquiring patents is dead, at least from the point of view of the patentees. The agreement on the panel was that well run non-practicing entities are in a particularly good position to start accumulating patents at a steep discount. Lindgren also predicted that we will see consolidation of the industry both with respect to private and public companies in the NPE or patent monetization space. I concur completely. Recently I wrote about the inevitable rise of super trolls, or super patent trolls. The market is not going away and the actions of Congress and the Supreme Court, which have made individual patents worth far less, and portfolios likewise worth far less, will ultimately work to create the monster that all of this anti-patent activity was intended to prevent. But that is always what happens when politicians attempt to regulate an industry that they don’t understand and Judges are more interested in playing the part of super legislators.

Yan Dietrich, Senior VP of France Brevets, pointed out in response to a question that once upon a time portfolio valuation was almost all about U.S. patents, which would account for 70-80 percent of the value of a portfolio. Increasingly today questions are being asked about whether the portfolio contains patents in China and in Europe.

This then prompted Ramer to point out that the goal today is not about having 20,000 patents, but rather about having 3,000 good ones, which jives with what everyone seems to be talking about in the wake of the latest Supreme Court decisions. It will be better to have a strong, solid, smaller portfolio than to have large quantities of patents that likely only have invalid patent claims.

The first panel just wrapped. I will be here throughout the day today and tomorrow, and the plan is to provide more coverage as the event continues.


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