We analyzed all of the packages in our database to look at the use of the assets after receipt of the package by the broker. Because we used a better source of US litigation and inter partes review data this year, it makes it impossible to compare our results to our previous year’s analysis. Focusing on package-level analysis for packages received in the market years from 2012 to 2016, and looking for packages with at least one litigation or inter partes review as of October 2016, we found that the sold packages are litigated and inter partes reviewed to a greater degree than packages generally.
Though patent sales rates have decreased in 2016, the patent market remains viable and robust. We continue to see a trend in the increased speed at which packages sell (over 50% are sold within four months) as well as an increased sales premium for packages with Evidence of Use (EOU) — a 27% price boost. 2016 also saw a rise in sales rates from larger patent packages; its highest sales rates were from packages with between 11 and 25 assets, an increase in package size from 2015, which counted its highest sales rates from packages with six to 10 assets.
When comparing the per-asset price to the asking price for packages, we found that per-asset pricing is relatively constant in the pricing brackets from $250,000 to $2 million, with the low being $180,000 per asset and the high being $234,000 per asset (Figure 9). We observed a slight premium on asking prices in the $4 million to $10 million range – $323,000 – which was not seen in 2015. However, the $10 million to $20 million range per asset prices dropped significantly, from $356,000 to $257,000. Because of a limited number of packages in the $4 million-plus range, it can be challenging to draw firm asking price conclusions for those packages. However, it may be that sellers are becoming more reasonable; the outliers in the $4 million to $10 million range are being driven by smaller packages with many EOUs, as opposed to large undifferentiated packages. Price per asset continues to drop for packages below $250,000, indicating higher-risk or lower-value patents (eg, no infringement, recent priority dates or almost expired patents).
This is part 2 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. 2016 saw a significant rise in both the number of patent brokers and patent packages, with the latter mostly due to IAM Market packages. Though the frequency of package sizes is similar…
After five years of analyzing and reporting on the patent market, the only constant appears to be change. Although asking prices have stabilized, sales are down, bringing the value of the brokered market down to $165 million from $233 million last year. However, the launch of both IAM Market and the Industry Patent Purchase Program (IP3) has introduced new buying opportunities. At the same time, the impact of negative patent decisions is becoming apparent as non-practicing entities (NPEs) pull back from the market. For the first time, purchases by corporations have exceeded NPE purchases. Even the biggest NPEs have been affected, with RPX succeeding Intellectual Ventures (IV) as the new buying leader. Further, the data shows that the US Supreme Court’s decision in Alice has crushed much of the nascent financial technology (fintech) patent market and affected software package sales rates. Finally, we received better litigation data this year and it appears that the litigation risk from sold patents is much higher than previously reported – you may want to reconsider your risk models and membership of defensive aggregators.
Lenders and investors like Gerchen Keller and Fortress, among others, have provided capital to or are partnering with private and public NPEs. These business are well suited to assessing market conditions, especially value, and calculating risk for given rights in a specific industry. That they are still willing to fund activities and co-invest in this climate is a testament to the durability of good patents. Also, there is some expectation that we are at or near bottom, and that there are more opportunities now.
If you were buying patents in 2015, you likely did better than any previous year. The patent market, and, in particular, the brokered patent market, continues to be a robust market for buying and selling patents. Prices are down unless an EOU is available. Sales rates are up, and sales are tending to happen earlier. Caselaw impacted the market but not as much as you might have expected (Alice impacted fintech patents much more than software patents). With an estimated $233M in patent sales, we think the patent market will continue to provide interesting opportunities for both patent buyers and sellers.
Alice certainly has dealt a huge blow to patent market, reversing the growth momentum of most market players, big or small. However, the decline in patent sales revenue has significantly decelerated to 5% in 2015, based on the estimated data. Not all segments of IP industry have weathered the Alice storm equally well. Most NPEs have seen their share prices plunging half to nearly 100%. There will be more restructuring and further consolidation in NPE business in 2016.
So it now looks like this: if you are a patent owner and feel that your rights have been encroached upon, you now have to assume there will be a challenge to their validity by a potential licensee through an Inter Partes Review (IPR). If you are one of the lucky few (~25%) who survive such a challenge with at least one valid patent claim, you then have to expect an appeal. Assuming you win that appeal, then the real court battle starts in earnest and you’ll have to face what has now become a $3-5M ordeal in legal fees to get through a full trial on the merits and the routinely filed appeal should you beat all odds and win. Treble damages for willful infringement have been rarer than a dodo bird sighting and even winning does not mean you will collect your money any time soon, as the Apple-Samsung saga has recently shown.
“At the end of the day innovation is important,” Jung explained before he lamented the fact that the United States “seems to be making it harder and harder to be competitive globally…” Jung ended his presentation by pointing out that in 1820 the United States contributed only 1.8% of world GDP, but that thanks to an innovation economy the United States peaked at about 30% of world GDP, “predominantly driven by invention-driven industries like automotive, like aerospace, like pharmaceutical and so on. These were all based on key inventions that the US dominated the landscape on. That’s clearly not going to be the case going forward. It’s going to be much more distributed across many different countries, which is why I think, again, diversity is going to be the key.”
Abha Divine is the founder and managing director of Techquity Capital Management, which is an IP investment firm that partners with IP owners to help them deploy their assets into untapped markets to broaden their reach and increase liquidity.We discussed the changing IP investment landscape and deals used to focus nearly exclusively on the number of patents transacted. Of course, that changed in the wake of recent substantive patent law changes. The focus of deals, at least those that were being done over the past few years, was quality. But now we are starting to see the marketplace value quantity again, but not at the expense of quality.
EDWARD JUNG: ”At the other end of that value chain you now have some of the most valuable companies in the entire world in places like China. What stops them from taking all of the value they’ve been able to derive from their over one billion population base, which well capitalizes them, and coming in and competing in the US? The US has not seen so many threats to their industry come from outside the US as opposed to within the US so in that sense I think that’s a whole new set of interesting problems to think about. I’ve actually had encounters with Chinese companies asking if there was some kind of, you know, hidden trick in the way we appear to be opening our market for them to freely come in without any IP barriers. For example, in pairing software and IP and so on and so forth.”
One thing is certain in these tumultuous times, the business of patents has changed. The days of bulk buying at $10,000 per patent have ended; public IP companies are under legislative and shareholder pressure; and, IPR’s have significantly impacted the value of weak patents. These are just some of the examples of significant business changes. So what is a patent owner to do when they want to monetize their patents? There are only three options for patent owners: they can license their patents, they can sell their patents or they can do nothing.
Ashley Keller: ”I am mildly bullish, because we’re coming from such a low point that it is likely to improve from here. We just talked about the Supreme Court and the willfulness case. I also think that Europe’s unitary patent system is going to be an eye-opener, because it has the potential to be better than our system’s status quo. Competition is a healthy force, and the new system will drive innovation over there. People are going to pay attention to that, and as a consequence, it may improve things over here.”
Ashley Keller: ”I think the market is challenging right now. I wouldn’t say it’s deteriorating—it’s more stable than it’s been—but I think it’s a challenging market. There has been a fair amount of court activity, with a lot of it potentially negative for patent monetization and patentees. In terms of things on the horizon, Congress seems to perhaps have decided not to pursue patent reform this year, but that is always something that’s looming large in the background. And some of the reform proposals had some decent ideas in them, but they were sandwiched between some ideas that were potentially going to weaken patent rights even further. So until that risk is decidedly off the table, I think the patentees have to be cognizant of it. All of that leads to a difficult environment for monetizing IP rights for the moment.”