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Patent Market 2015 – Buyers, Sellers & What Are They Paying?

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What is the current trend of the brokered patent market, and how can you as a buyer or seller exploit the current patent climate? We look into market pricing, litigation risks, NPE activity and more to help you decide your best patent options for 2015.

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Patent Market 2015 – Buyers, Sellers & What Are They Paying?

  1. 1. Business Sense • IP MattersBusiness Sense • IP Matters 1 Patent Market 2015 – Buyers, Sellers & What Are They Paying? Kent Richardson & Erik Oliver November 23, 2015 Contact Information: +1 (650) 967-6555 info@richardsonoliver.com Copyright 2015 ROL
  2. 2. Business Sense • IP Matters Agenda Solving the Patent Challenge Case example of building and buying patents to address the challenge Patent Market Trends and Forecast The brokered patent market Market prices for patents today and trends Who is buying and who is selling What about Alice? How to Buy Effectively? Corporate patent buying overview Copyright 2015 ROL 2
  3. 3. Business Sense • IP Matters Case Study: Why Trade in Patents? • 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 (Microsoft, IBM…) The story of OurCo – the challenge Examples Companies With Similar Challenges Copyright 2015 ROL
  4. 4. Business Sense • IP Matters Typical Patent Defense Considerations 4 OurCo’s Patents OurCo’s Revenue Asserter’s Patents Asserter’s Revenue Company to Company Copyright 2015 ROL • Revenue generation • Create freedom to operate – remove patent risk • Strategic/business interference Patent asserter’s goals • 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 Primary consideration in patent asserter’s decisions
  5. 5. Business Sense • IP Matters OurCo’s Ecosystem of Patent Risk 5 Patent threats come from OurCo’s near ecosystemWhat is OurCo’s business ecosystem? Comp etitors Custo mers Suppli ers Partne rs OurCo Corporate asserters OurCo’s potential patent risk Copyright 2015 ROL
  6. 6. Business Sense • IP Matters OurCo’s Ecosystem of Patent Risk - Filtered 6 OurCo’s potential patent risk ?? ? ?? ? ? OurCo Which risks is OurCo going to address? Copyright 2015 ROL
  7. 7. Business Sense • IP Matters OurCo’s Patent Strategy Planning and Execution • Ecosystem risk analysis • Identify target organic patent development and patent purchase technology areas • Develop budgets and authorization process Planning • 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 Execution 7 0 100 200 300 400 500 600 Portfolio Internal Purchased T=0 T=4 years Copyright 2015 ROL ?
  8. 8. Business Sense • IP Matters OurCo’s Patent Strategy Actuals •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 Organic patent •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 Patent purchases 8 0 100 200 300 400 500 600 Portfolio Internal Purchased T=0 T=4 years Copyright 2015 ROL
  9. 9. Business Sense • IP Matters 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 9 0 20 40 60 80 100 120 140 #ofAssets Priority Patent Assets at T=0 Internal 0 20 40 60 80 100 120 140 #ofAssets Priority Patent Assets T=4 Internal Purchased Copyright 2015 ROL ~15 year span ~15 year span
  10. 10. Business Sense • IP Matters Agenda Solving the Patent Challenge Case example of building and buying patents to address the challenge Patent Market Trends and Forecast The brokered patent market Market prices for patents today and trends Who is buying and who is selling What about Alice? How to Buy Effectively? Corporate patent buying overview Copyright 2015 ROL 10
  11. 11. Business Sense • IP Matters 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 11Copyright 2015 ROL
  12. 12. Business Sense • IP Matters How Big Is the Patent Market? 12 •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 Robust market – Nearly $7B of patent deals tracked •566 brokered packages received containing nearly 9,000 patent assets 2015 market remains robust • Source Richardson Oliver Law Group LLP, 2015 Brokered Market Report Copyright 2015 ROL $- $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
  13. 13. Business Sense • IP Matters Introducing 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 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 Why study the brokered patent market? 13Copyright 2015 ROL
  14. 14. Business Sense • IP Matters What Is in a Brokered Patent 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) Typical package •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 Example package from Patent Profit (Will Plut) •Receive about 50 packages per month covering a broad range of technologies Package flow 14Copyright 2015 ROL
  15. 15. Business Sense • IP Matters 2015 Market Pricing 15 Asking Price $K Top and bottom 5 data points from each set removed Per Asset Per US Patent Average $189.88 $276.68 Min $16.95 $30.00 Max $925.00 $1,000.00 StdDev $183.18 $249.29 NumData 430 423 • Prices are down about ~$50K • But, sales rate is 23% ahead of comparable period last year • Prices vary substantially by package size Market pricing Copyright 2015 ROL
  16. 16. Business Sense • IP Matters It’s a Great Time to Be a Buyer! 16 • 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 Asking prices are down $190K • Source Richardson Oliver Law Group LLP, 2015 Brokered Market Report
  17. 17. Business Sense • IP Matters Pricing Focus Brokers favor the $250K-to-$2M price point 57 66 133 79 33 40 13 2 0 20 40 60 80 100 120 140 Distribution of asking prices, top and bottom 5% removed Bulk pricing kicks in with > 20 assets 0 50 100 150 200 250 300 350 400 450 500 1 2 to 5 6 to 10 11 to 25 26 to 50 51 to 100 101 to 200 Per Asset Asking Price by Package Size (# Assets) 17Copyright 2015 ROL
  18. 18. Business Sense • IP Matters 2015 Average Asking Price per US Issued Patent by Tech Category (US$) Copyright 2015 ROL 18 • Tech pricing is important for making buying decisions • Business process (Financial Technology) related patents still demand price premiums Pricing by tech category • Source Richardson Oliver Law Group LLP, 2015 Brokered Market Report
  19. 19. Business Sense • IP Matters 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 • Almost no drop in pricing for claim charted packages • 25% better chance of a sale if there is an claim chart Claim charted packages maintain their pricing power Copyright 2015 ROL 19 • Source Richardson Oliver Law Group LLP, 2015 Brokered Market Report
  20. 20. Business Sense • IP Matters Sales Rate Is Up (a Little) 20 •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 Sales rates are up slightly, but still below 30% Copyright 2015 ROL • Source Richardson Oliver Law Group LLP, 2015 Brokered Market Report Copyright 2015 ROL
  21. 21. Business Sense • IP Matters Buying Patents Faster is an Advantage 21 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Cummulative % Sales 2014 by Months from Receipt Date Advantage to Buy Here Copyright 2015 ROL
  22. 22. Business Sense • IP Matters Distribution of Seller Type by Sale Year 22 •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 Operating companies dominate the market Top Sellers (All Years by Package Count) Alcatel Lucent Allied Security Trust (AST) ATT BAE Systems ETRI Fujitsu HP Italian National Research Council Korea Institute of Science and Technology (KIST) RPX Siemens Sony Corporation Spansion Verizon Xerox Corporation • Source Richardson Oliver Law Group LLP, 2015 Brokered Market Report 2014 and 2015 Operating Company 71% NPE 16% Inventor 8% University/Research 1% Defensive Aggregator 1% Other 1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Distribution of Seller Type by Sale Year Copyright 2015 ROL
  23. 23. Business Sense • IP Matters Who Sells to IV (Fund I & II)? OrderedbyNumberofPatentsSold(atleast30sold) Top 20 Next 20 Next 20 Next 20 Kodak Nortel Recursion Software Mosaid Digimarc Cubic Wafer Hong Kong Technologies Lapis NXP Genesis Microchip Nippon Steal Casio Raytheon Marconi IP Fujitsu Thales Mangachip Delphi Chunghwa Picture Tubes Alcatel-Lucent Telcordia Verizon Sonic Dowling Consulting Transmeta Aplus Flash AT&T Lockheed Martin Spyder Navigations Autocell Katrein-Werke Pulse-Link Amex Crosstek Capital California Inst of Tech Lightspeed Logic Polaroid Tier Logic Be Here PSS Systems Cypress Semi Mindspeed Technologies Digital Imaging Systems DuPont Daimler Cirrus Logic Ideaflood Lightsmyth Tech France Telecom Kimberly-Clark UMC ST Micro Primax Electronics Airnet Communications Microsoft Rockwell Conexant Idelix Software Airip Cooler Master BAE Icefyre Semi Discovision Xerox Sanyo Mitsubishi Motorola Arraycom Nokia Neomagic Triquint Believe Bellsouth Oki Electric Terabeam General Dynamics Entorian IPWireless Exclara 23 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 Copyright 2015 ROL
  24. 24. Business Sense • IP Matters Distribution of Buyer Type by Sale Year 24 •NPE buying remains a significant part of the market with Intellectual Ventures leading the buying Operating companies remain strong buyers Top Buyers (All Years by Package Count) Allied Security Trust (AST) Apple Computer Intellectual Ventures LinkedIn Google RPX Open Invention Network (OIN) Qualcomm • Source Richardson Oliver Law Group LLP, 2015 Brokered Market Report 2014 and 2015 NPE 42% OpCo 34% Defensive Aggregator 21% Other 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Distribution of Buyers Type by Sale Year Copyright 2015 ROL
  25. 25. Business Sense • IP Matters Litigation and IPR Rates – 2014 Listed 25 Total Listed 2014 Sold Unsold All Packages 119 512 631 Litigated 2014 1 2 3 % Litigated 0.84% 0.39% %0.48 • 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 Public risks are relatively low Copyright 2015 ROL
  26. 26. Business Sense • IP Matters IV Has Not Stopped Buying • Launched around 2014 • Purchased technologies • Media storage • Computer memory • Spansion assets • Rambus assets • Networking • Cable TV III Fund buying • Buying is less aggressive than Fund I and II • Less capital in Fund III • Concern over inflating the price of patent Fewer purchases 26 • Richardson Oliver Q1 2015 Patent Sales Report Copyright 2015 ROL
  27. 27. Business Sense • IP Matters Some Patent Brokers Consistently Beat the Market Sales Rate 27 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 10 20 30 40 50 60 70 80 90 100 SalesRate Number of Packages Listed by a Given Broker 2014 Broker Sales Rate by Number of Listed Packages 2014 Current Sales Rate (18%). Projected is 29% Copyright 2015 ROL
  28. 28. Business Sense • IP Matters Surprising Delay in Recording Many Assignments 28 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 All Sales 94 116 70 26 9 14 6 3 3 3 0 4 0 1 0 1 0 0 20 40 60 80 100 120 140 Months Number of Months Delay in Recording the Assignment After the Executed Date (All Sales) A long time to register the purchase! Copyright 2015 ROL
  29. 29. Business Sense • IP Matters 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 29Copyright 2015 ROL Business process pricing disconnected from sales rate?
  30. 30. Business Sense • IP Matters Agenda Solving the Patent Challenge Case example of building and buying patents to address the challenge Patent Market Trends and Forecast The brokered patent market Market prices for patents today and trends Who is buying and who is selling What about Alice? How to Buy Effectively? Corporate patent buying overview Copyright 2015 ROL 30
  31. 31. Business Sense • IP Matters Corporate Buying Program - Overview •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 Primary goal: Defensive counterassertion •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) Secondary goal •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 Key challenges 31Copyright 2015 ROL
  32. 32. Business Sense • IP Matters Process Overview: Example Filtering and Relative Diligence Costs 32 ROL package database Search results candidate pool Preliminary human filtering Detailed filtering Test availability and EOU creation Further testing Bidding and buying 2050 500 100 50 10 5-7 1-3 Packages Remaining Copyright 2015 ROL $ $ $$ $$ $$$ $$$$ $$ Relative Diligence Costs
  33. 33. Business Sense • IP Matters Effective Filtering of Patents Reduces Costs 33 > 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
  34. 34. Business Sense • IP Matters 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 34Copyright 2015 ROL
  35. 35. Business Sense • IP Matters Copyright 2015 ROL 35 BUSINESS SENSE • IP MATTERS ROL Group has over 60 years of IP strategy and execution experience. We ask the business questions first. We blend in-house and large law firm experience to create clear steps for success. We guide companies through unique IP challenges—like buying and selling patents, developing licensing programs, defending against patent assertions, and creating a value-driven IP portfolio. We give direction to businesses that share our passion for new ideas, creative problem solving and forward motion. Contact Information: +1 (650) 967-6555 info@richardsonoliver.com

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