This is part 6 of a 6-part series on our 2016 Patent Market Report. To begin reading from the beginning please see 2016 Patent Market Report: An Overview.
We conclude our 2016 Patent Market Report with an in-depth view of the current patent market size and reflect on our key findings and action items for the year. Even with some setbacks in 2016 (eg, price drops, decreased sales, a shrunken market), the patent market continues to be strong and robust.
Once again, the brokered market has shrunk: we estimate that actual sales from June 1, 2015 to May 31, 2016 were $165 million (down from $233 million the previous year).
We have continued to reuse the methodologies adopted in last year’s article to simplify the analysis by using the actual observed sales which were executed in the 2016 market year, along with their asking prices. As with last year, if no pricing guidance was provided, the average asking price per asset for that market year (eg, $197,000 for 2016 market year listing) was multiplied by the number of assets to determine the expected asking price.
In the 2016 market year, 118 sales were identified, accounting for a total asking price of $242 million. We know that some of the sales in that period have not yet been recorded – estimated at approximately 3% – so we reduced our standard 35% discount between the asking price and the expected selling price to 32%. Thus, our expected total market size for the 2016 market is $165 million. In our analysis last year, we estimated the 2015 market at $233 million, so the market has declined by approximately 30%.
Using an average commission rate of 25%, the revenue from this market for brokers is $41 million per year. We back-tested the market size by estimating the average loaded labor rate per broker ($300,000 a year), resulting in 137 full-time equivalent brokers. Assuming that three brokers work in each brokerage, this results in approximately 46 brokerages. Our data shows 73 brokerages, which suggests that there are even fewer brokers per brokerage or that brokers are doing other things (eg, consulting). Additionally, each brokerage brings about nine packages to the market per year. However, our data shows that a few brokers bring many packages to the market, with the majority bringing a few packages.
Opportunities and Reflections
We started writing these articles on the brokered patent market five years ago to inform the market and we will continue to do so (“Turning the spotlight on the brokered patent market”, IAM issue 57; “The brokered patent market in 2013”, IAM issue 63; “The brokered patent market in 2014”, IAM issue 69; and “The brokered patent market in 2015 – driving off a cliff or just a detour?”, IAM issue 75).
Key findings and action items from this year’s analysis include the following:
- At $165 million, the brokered patent market is down, but robust and viable. Companies can fill niches, build counter-assertion portfolios and address potential risk cost effectively.
- New sources such as IAM Market and IP3 have transformed the landscape of available buying opportunities.
- The impact of negative patent decisions shows in the data, with NPEs down but not out. With the increased litigation risk from both sold and available patents, defensive aggregator membership and risk models should be re-evaluated.
The evolution of the patent market continues as more companies look to participate. Companies should define success in their patent buying/selling programs with metrics calibrated to market data. Through focused sourcing and intake processes, buyers can streamline their processes to identify high-value patents more effectively (see Figure 12 and accompanying discussion in Part 3 of our series). Further, buyers can leverage the market pricing data that we provide and pair it with company-specific valuation models. Buyer expectations have helped to drive the market to be more efficient: more and varied sources of patents, provision of more EOUs and clearer pricing guidance. Taken together, these result in improved liquidity and a market that is significantly more transparent than it was five years ago.
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One comment so far.
Night WriterApril 27, 2017 08:18 am
Just think the giant whining Google has $80 Billion in the bank, but those patents are taking all their profits and making it impossible for them to operate.