Posts Tagged: "patent market"

Imagine you have found four patent families that address a specific risk to your business, and you are about to ask your boss to approve buying those patents for $2 million. Her questions might include, “What’s the going rate for patents?” Similarly, if you were working with your company’s accounting team and moving four patent families from your corporate parent to a subsidiary, the accounting department might ask, “What is the ‘fair market value’ of these patents for transfer pricing?” A preliminary issue arises: what are you really being asked for? This confusion in part stems from the common use of “price” and “value” nearly interchangeably in day-to-day conversations.

Are you bullish or bearish on the 2020 patent market? That is the question I asked a panel of experts recently. Each of the experts surveyed will participate on the faculty at IPWatchdog CON2020, which will take place in Dallas, TX from March 15-18. All those industry insiders who responded are bullish, which is an interesting change after many years of insiders being bearish, or at best cautiously optimistic. Indeed, the sentiment expressed across the board by experts from both the monetization / licensing world and litigation world is surprising, at least at first glance. And, as you will read below, while at least several people cited the uncertainty around patent eligibility in the United States, there is real optimism because license deals are getting done and policy changes show evolutionary changes in the IP ecosystem.

Despite falling average prices, in 2018, the patent market grew fast. We estimate the 2018 market size to be $353 million, up from last year’s estimated $296 million. The 2016 market slump (estimated $165 million market) is, hopefully, a thing of the past. In order to make this estimate, we use the observed sales that occurred in the 2018 market year and used their actual asking prices to determine the market size. As is consistent with the previous two years, if no pricing guidance was provided, the average asking price per asset for the market year of the sale (eg $123,000 for 2018 market year sales), was multiplied by the number of assets to determine the expected asking price. In the 2018 market year, 210 sales were identified, accounting for a total asking price of $527 million. Due to recordation delays, we assume that we have not yet seen 3% of the sales that occurred in the timeframe, so we multiplied this total asking price by 1.03 before applying our standard 35% discount between asking price and expected selling price. Thus, our expected total market size for the 2018 market is $353 million, indicating that the market has increased by 19% since last year and 114% since the 2016 market.

As a buyer, tracking the behaviors of sellers, both in aggregate and individually, allows you to operationalize your buying activities. This is especially true for repeat sellers, who account for 41% of the transactions for patent packages listed in calendar years 2017 and 2018. Knowing who the regular sellers are, often companies with a large portfolio, allows you to contact sellers to create a private deal. Keeping track of a seller’s listings, package sizes, and asking prices can also help you in negotiations because you know their negotiation parameters at the outset. Similarly, if you are a seller, it is important to get out the word that you are selling. Listing packages on your website, through the IAM Market, or working with brokers attracts buyers to you rather than you having to spend the time and effort to find them. For the analysis of current sellers and buyers we looked at all of the packages that sold between January 1, 2017 and May 31, 2018 (assignments were last checked on August 15, 2018) regardless of their listing date. Sales continue to be made mostly by operating companies, which is not surprising as they file the majority of patents. Operating companies were the sellers in 67% of transactions. This is remarkably consistent, at 66% in the previous two papers.

When discussing potential patent purchases with buyers, we continue our push to end the use of the phrase “low quality” to broadly characterize rejected patents. We often hear that there are junk, low quality or weak patents on the patent market. Clearly, there are some patents that we can objectively agree are low quality, just as there are in most portfolios. However, buyers with an efficient buying program should never test the majority of patents for “quality” metrics (e.g. enforceability) because these tests are simply too expensive. Sophisticated buyers create targeted buying programs rather than general ones. When buying, you should have a use case in mind and analyze the value of the patents in that particular context. If you want patents to counter assert against Qualcomm, do not waste time and money evaluating clean energy patents. The “quality” of anything in that technology area is irrelevant. Buyers also tend to conflate quality and value when discussing packages. A package with no value to you for your particular business use should be rejected from your buying program, but again, this is not a comment on the quality. It is easier and cheaper to reject a patent for lack of value that to analyze it for quality. Necessarily, a well-run buying program has visibility into only a small set of the available packages on the market; for the rest of the packages, the program should have no visibility into the quality of the packages because the packages were rejected before any quality metrics were evaluated.

In any market, pricing is where the rubber meets the road. As a buyer, you will not be taken seriously if you significantly underbid, yet you want to get a fair price. Conversely, if you are a seller who will not negotiate near the market price, it will be almost impossible to close a deal. We understand that patents are definitionally unique, have varying relative strengths and market applicability, and also that the demand for patents varies by technology area and many other factors. But when it comes down to it, you have to have a place to start. This is where average pricing statistics become useful. And to every seller who says: “My patents aren’t average, so average pricing should not apply to me,” we respond by saying: “We’ll accept that as true, you just have to show us why.” In the vast majority of cases, starting with the average price and moving up or down from there is an effective way to set a price for buyers and sellers. In 2018, the average price per asset shifted significantly: it fell by 30%, from $176,000 per asset to $123,000. The asking price per U.S.-issued patent also dropped by 30% from $251,000 to $176,000. If you are a seller and these were the only facts you had, it would look like it’s time to panic. But this is not the whole story. The drop was primarily due to an adjustment in the asking price for single-asset packages. For most package sizes, the asking price did not change at all. Figure 8 shows the asking prices per asset across packages of different sizes. In the 2017 market, there was a massive premium on single-asset packages. In 2018, the price for single-asset packages dropped by 56% and came more in line with the pricing for other package sizes. This drop in single-asset prices accounts for 48% of the overall drop in per-asset prices. The asking price in the 26-50 asset range also dropped significantly, while the price for 6-10 asset packages went up.

Two years ago, we told the story of a patent broker who said: “This market keeps on getting worse; the case law keeps on coming out against patent owners; the prices keep dropping. This job keeps getting harder.”  We replied: “Our data says that you did pretty well last year.” “Right,” the broker conceded. “Last year was our best year ever …” This is truer now than ever before. Many of the metrics by which we analyze the patent market have been focused on the price of a single patent, a patent family, or even a group of patents in a package. But this leaves out a key market statistic: volume. As the market matures, we see: prices stabilizing across listings, buying and selling programs becoming more streamlined, and more transactions overall. The market is up, with more sales and more participants than ever before. While average asking prices dropped again, this drop was mostly due to single-asset prices normalizing to the pricing of the rest of the market. Meanwhile, listings, sales, and dollars transacted have all increased. The market continues to grow.

Occasionally, we hear people say, “brokered patents are all junk.” This begs the question, “are operating companies and non-practicing entities (NPEs) spending hundreds of millions of dollars buying junk patents?” Luckily, the short answer is no. We know clients have successfully bought and used brokered patents to substantially alter their licensing and litigation posture at a lower cost than the alternatives. We also know that patents on the brokered market rank higher than average patents. So why this disconnect? We are victims of our own cognitive biases and the behavioral economic traps that make it harder for buyers to find and buy patents… When only a small fraction of what we are looking at is ultimately interesting to us, our brains can trick us. Using a structured decision-making process together with some tools can overcome those biases and allow us to identify and buy the patents that fit our business needs.

AST, a provider of proactive patent risk mitigation solutions, recently announced the results from IP3 2017, a fixed price, fixed term, collaborative patent buying program. Launched this past August, IP3 2017 gave sellers an easy way to access the secondary market by streamlining the process of selling patents with a fixed price, rapid response model. Through IP3 2017 patent sellers…

Where is there currently value and opportunity in the patent industry? That is the question I asked a panel of experts recently. Not surprisingly, several of the experts who responded identified global markets as where opportunities currently exist, which is not surprising given the weakening of the U.S. patent system over recent years and a concerted effort by European and Chinese leaders to strengthen their respective patent regimes and marketplaces. Several others focus on opportunities that also exist for those companies that strategically view their patent portfolios and innovations as doorways to new markets as part of a growth strategy.

Are you bullish or bearish on the 2018 patent market? That is the question I asked a panel of experts recently. For the most part, those industry insiders who responded are bullish, although some are cautiously bullish. As you will read below, there seems to be a consensus that activity will be up in terms of deals in 2018, but relief from the downward pressure on prices experienced over the last several years likely will not be forthcoming in 2018.

“The key ingredient needed for the prisoner’s dilemma to work its destructive magic is a lack of transparency between the parties involved,” Siino writes. The article goes on to discuss how the lack of transparency in patent licensing transactions is disrupting the the patent marketplace, and threatens “to break licensing’s virtuous circle of innovation leading to commercialisation, which in turn funds more innovation.”

For more than two centuries, the U.S. Constitution, black letter law and precedent construed a patent as a property right. This is important because it is the nature of property rights that enables investment in early stage startup companies, especially those with cutting edge technologies in highly competitive fields like pharmaceuticals, biotech, smart phones, enterprise software, internet, semiconductors and other technologies critical to our infrastructure, military and much more… The same agency that takes inventor money to grant patents takes infringer money to destroy them. This creates an appearance of double dealing, and inventor belief that the USPTO is breaching the “grand bargain” of the patent system. Inventor confidence is at an all-time low because inventors are lured away from using trade secrecy protection, but then given nothing in return for disclosure. The effect of PTAB on inventors is devastating. Since institution of PTAB, over 50% of inventors simply quit rather than suffer the financial and stressful indignation of post grant invalidation.

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)… 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%.