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Patent Market 2016 – Importance of Aggregators to Manage Risk and Market Data

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Patent market trends for 2016 and how do defensive aggregators play in that market to help manage patent risk.

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Patent Market 2016 – Importance of Aggregators to Manage Risk and Market Data

  1. 1. Business Sense • IP MattersBusiness Sense • IP Matters 1 Patent Market 2016 – Importance of Aggregators to Manage Risk and Market Data Erik Oliver, Kent Richardson & Michael Costa November 17, 2016 Contact Information: +1 (650) 967-6555 info@richardsonoliver.com Copyright 2015 ROL
  2. 2. 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 Example Companies With Similar Challenges Copyright 2015 ROL
  3. 3. Business Sense • IP Matters 0 500 1000 1500 2000 2500 3000 3500 4000 # Assets Priority Year Total Portfolio by Priority Year Acquired Portfolio Organic Portfolio Large Corprate Asserter 0 500 1000 1500 2000 2500 3000 3500 4000 # of Assets Priority Year Portfolio Growth by Priority Year Organic Portfolio Large Corprate Asserter Projected Organic Portfolio Case Study: OurCo Addresses Patent Deficit with Bought and Organic Growth Pre Implementation: Gap Between OurCo and Likely Asserters Post Implementation: Organic Filings and Patent Purchases Address the Challenge 3Copyright 2015 ROL ~13 year span ~13 year span
  4. 4. Business Sense • IP Matters Case Study: Actionable Results Prepared Counter-assertion Strategy Company Pre-Program Strategy Today’s Strategy Company1 Assumed Low Risk Business Relationship Company2 Assumed Low Risk Business Relationship Company3 Assumed Low Risk Business Relationship Company4 Assumed Low Risk Business Relationship Company5 Assumed Low Risk Business Relationship Company6 Unknown Risk Key Patents Identified Company7 High Risk Key Patents Identified Company8 High Risk EOUs Created Company9 High Risk EOUs Created Company10 Unknown Risk EOUs Created Company11 Unknown Risk EOUs Created •Actionable response strategies for licensing approaches were created for companies of concern •Facilitated by targeted buying to build playbooks with EOUs on companies of concerns •Targeted buying makes our portfolio relevant to licensing negotiations; comparable proportion to the asserter’s organic portfolio in many instances Playbooks 4 Asserting Company's 2003 Organic Filings OurCo's 2013 Targeted Buying # of Patents Targeted Buying Not applicable to current negotiation Valuable to current negotiation
  5. 5. Business Sense • IP Matters 2016 Market Overview • Asking prices have stabilized • Sales are down • Sales rates of 2016 listings decreased significantly • Total transactions also down, but less so • Brokered market down to $165M from $233M last year Market trends • New sources have expanded buying opportunities • IAM Market and IP3 New places to buy • NPEs pulling back from the market • Purchases by corporations have exceeded NPE purchases • Even Intellectual Ventures (IV) is affected • IV no longer buys the most: RPX is the new buying leader • Alice crushed much of the fintech patent market and impacted software package sales rates Negative patent decisions having impact • Litigation risk from sold packages is much higher than previously reported (better source data) • Reconsider your risk models • Reconsider membership in defensive aggregators Litigation 5Copyright 2016 ROL
  6. 6. 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 • Quinn Pacific, ICAP, Patent Profit • Bankers, law firms, IAM managers 6Copyright 2015 ROL
  7. 7. 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 7Copyright 2015 ROL
  8. 8. Business Sense • IP Matters Market Context 8 • Since 2011 we have tracked $7.5B brokered and $3.7B non-brokered patent packages • Over 3,700 packages with 90,000 patent assets • Over 100 technology categories represented across hardware, software, communications; including automotive-specific categories Robust market - Over $11B of patent deals tracked • 772 packages, over 11,000 assets • IAM market accounts for increased packages - More places for buyers to look for packages • Number of sales and sales rate may be dropping • Takeaway: Monitoring the market enables cost effective risk mitigation 2016 market robust, but... Copyright 2016 ROL $0 $2 $4 $6 $8 $10 $12 $14 Cumulative sum of asking prices ($B) - brokered and private market Cum Sum Asking Price (Entire Market) Cum Sum Total Asking Price (Sold) Predicted Cum Sum Asking Price (Entire Market) Predicted Cum Sum Total Asking Price (Sold)
  9. 9. Business Sense • IP Matters Patent Market Moves Closer to Mainstream Bloomberg Publishes Patent Market Data Participates Move to Optimize • What is the patent market? To How do I participate effectively? • Can I address patent problems by buying patents? To How do I find the best patents the fastest and cheapest? Narrative shifting from: 9Copyright 2016 ROL
  10. 10. Business Sense • IP Matters What’s Hot in the Patent Market Today 10Copyright 2016 ROL
  11. 11. Business Sense • IP Matters 0% 5% 10% 15% 20% 25% 30% 35% 40% <1 <2 <3 <4 <5 <6 Cumulate % Sold Time from Package Listing Date to Sale Date (years) Cumulative sales by years from package listing date 2011 2013 2014 Predicted 2015 Market Context: Sales Rates Are Down 11 •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 à sales data lags listing data by about 2 years Sales rates are down – Good time to be a buyer Copyright 2016 ROL • Source Richardson Oliver Law Group LLP, 2016 Brokered Market Report
  12. 12. Business Sense • IP Matters Market Context: Sales per Quarter 12 0 5 10 15 20 25 30 35 40 45 50 2014-Q1 2014-Q2 2014-Q3 2014-Q4 2015-Q1 2015-Q2 2015-Q3 2015-Q4 2016-Q1 2016-Q2 # of Packages Sold in Quarter Actual and projected sales by sales quarter Actual Projected Average +/- 1 StDev • ~190 new packages listed each quarter • ~25-41 sales per quarter (average ± 1 stdev) • Sales drivers: EOUs, fit to market needs Sales per quarter Copyright 2016 ROL
  13. 13. Business Sense • IP Matters Market Context: Broker Performance 13 •Not all brokers perform equally well •Brokers are highly selective •We can help you focus outreach to top performing brokers •Difficult time for new brokers because sales from older listings can supplement sales rates for new listings Broker performance 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 5 10 15 20 25 30 35 40 45 50 Sales Rate Number of Listings 2015 Broker Sales Rate by Number of Listed Packages (Calendar Year) Broker's 2015 Sales Rate 2015 Sales Rate 10.4% 2015 Current Sales Rate (10.4%) Projected is 21% Copyright 2016 ROL
  14. 14. Business Sense • IP Matters Market Context: 2016 Pricing Stabilization 14 Asking Prices ($K) 2016 2015 Per Asset Per US Patent Per Asset Per US Patent Average $197.32 $271.44 $190.31 $273.60 Min $16.67 $36.11 $17.24 $183.82 Max $750 $1000 $925 $1000 StdDev $177.44 $217.53 $181.14 $243.54 NumData 431 416 440 431 •Pricing has stabilized – and is taken more seriously by buyers •Prices are almost exactly the same as last year •Standard deviations are smaller •But, sales rate of 2016 listings is significantly below that of a comparable period last year •Prices vary substantially by package size Market pricing Copyright 2016 ROL
  15. 15. Business Sense • IP Matters Marketing EOUs: Why They Matter 15 Per Asset 2016 Per asset with EOU 2016 % difference between EOU packages and general market +27% Average $197.32 $251.12 Median $150.00 $166.67 Min $16.67 $19.61 Max $750.00 $925.00 StdDev $177.44 $225.07 NumData 431 200 •EOUs drive pricing premiums: +27% •Packages with EOUs are +50% more likely to sell •Combined benefit 91% increase in expected monetization value •Per asset prices may obscure underlying pricing dynamics, mix of value drivers and additional patents to reach a mutually acceptable price point and obscure value driver patents •We typically recommend a package with 3-5 families (typically 10-20 assets) with 1-2 value driver families with EOUs •Pricing sweet spot for a package is $250K-2M EOU marketing benefits Combine with better sales Per Asset 2016 Pricing premium +27% Increased sales rate +50% 91% Monetization Premium Copyright 2016 ROL
  16. 16. Business Sense • IP Matters 66% 17% 10% 3%2%1% Distribution of seller type by sale year 2015-2016 Operating company NPE Inventor University/research Defensive aggregator Other Distribution of Seller Type by Sale Year 16 •Operating companies represent over 66% of the patents on the market down from 71% •NPEs increased their sales up last year, this has continued - 17% up from 16% - likely as a result of difficulties enforcing their patents •Cross-licensing prior to competitor patent sales is a benefit Operating companies dominate the market • Source Richardson Oliver Law Group LLP, 2016 Brokered Market Report Top Sellers by Package Count Alcatel Lucent Allied Security Trust (AST) ATT BAE Systems, Inc. British Telecom Caveo Elizabeth Dyor Empire IP, LLC Harris Corporation IBM Imation Corporation Intel NEC Netsocket Nokia Solutions and Networks (NSN) Panasonic Corporation Petnote LLC QinetiQ Limited Rockstar Rovi Corporation TP Lab, Inc. Tyco Electronics Verisign, Inc. Verizon VideoMining Corporation Xerox/PARC Copyright 2016 ROL
  17. 17. Business Sense • IP Matters 48% 34% 15% 3% Distribution of buyer type by sale year 2015-2016 Operating company NPE Defensive aggregator Other Distribution of Buyer Type by Sale Year 17 •NPE buying is down to 32% (from 42%) – but still significant buying •We expect that remaining NPE’s are more sophisticated •Monitoring the market continues to be valuable tool for fighting the NPE problem •IV buying dropped to only 13 packages (down from 40) •How successful are IV’s licensing and sales? •RPX is top single buyer Operating companies now top buyers • Source Richardson Oliver Law Group LLP, 2016 Brokered Market Report Top Buyers by Package Count 9051147 Canada Inc. Alliacense Limited Llc Allied Security Trust (AST) Beijing Xiaomi Mobile Software Co., Ltd. Carlow Innovations LLC Commscope Emea Limited Domo, Inc. Empire IP LLC Facebook, Inc. Finnavations LLC Gemalto SA Google Inc. Huawei Technologies Co., Ltd. Intellectual Discovery Co., Ltd. Intellectual Ventures Knapp Investment Company Linkedin Corporation Marking Object Virtualization Intelligence, LLC Microsoft Technology Licensing LLC Open Invention Network, LLC Optimum Communications Services, Inc. Palo Alto Networks, Inc. Rakuten, Inc. Red Hat, Inc. RPX Corporation Taiwan Semiconductor Manufacturing Co., Ltd. Twitter, Inc. Uniloc Luxembourg S.A. Copyright 2016 ROL
  18. 18. Business Sense • IP Matters Value for business purposes of a specific buyer Proportion of the patent market Importance of Sequencing Diligence: Value Distribution in the Brokered Market 18 Goal: Identify high-value patents to purchase (1-2% of market) Copyright 2016 ROL ✓
  19. 19. Business Sense • IP Matters Importance of Sequencing Diligence: Value Distribution in the Brokered Market 19 Stage 1: General Tech Filter ($) Stage 2: Targeted Tech Filter ($$) Stage 3: Patent Validity and Prior Art Analysis ($$$) Stage 4: Building and Testing EOUs ($$$$) X X X X ✓ ✓ ✓ ✓ ✓
  20. 20. Business Sense • IP Matters Litigation Analysis: First Litigation Has Litigation (2012- 2016 market year packages) Has IPR (2014-2015 market year packages) Package Type Prior to listing date After listing date Prior to listing date After listing date Sold packages 5.4% 10.2% 0.0% 3.0% All packages 3.8% 3.5% 0.0% 1.4% 20 •10.2% of sold packages are litigated •Previous litigations also increase likelihood of sale •Model at package level: often have to buy the full package and cannot cherry pick •Per patent litigation risk: all patents: 0.8%; sold patents: 1.2% Litigation •Monitoring the patent market for sales allows for strategic/preemptive IPRs IPRs •However, risk is significantly more concentrated in the sold packages •Defensive aggregator value may be greater than anticipated •Pursue licenses (or license on transfer) before an OpCo starts listing its portfolio Both sold and unsold packages are litigated post listing Copyright 2016 ROL
  21. 21. Business Sense • IP Matters Q0 Overall NPE 96% 86% OpCo 4% 14% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % of Litigations Distributions of OpCo vs NPE Litigations 0% 20% 40% 60% 80% 100% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Cumulative % of NPE Litigations Quarters from Sale Date Cumulative distribution of time from sale to filing date for each case for litigated packages NPE Plaintiff Litigation Analysis: Sold, All Litigations Timing 21 •NPE’s account for vast majority of litigated cases •NPE’s file quickly, and file multiple cases •Half of NPE litigations filed within 6 months of sale •Operating companies buy for future risk •>50% of OpCo litigations are filed more than 18 months after the sale For litigated sold packages Copyright 2016 ROL 0% 20% 40% 60% 80% 100% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Cumulative % of OpCo Litigations Quarters from Sale Date OpCo Plantiff * Plaintiffs were analyzed, OpCo’s were identified; all other entities are classified as NPE’s for this analysis 50% of Litigations 50% of Litigations Time
  22. 22. Business Sense • IP Matters 2016 Market Conclusions • Asking prices have stabilized, sales are down • Brokered market down to $165M from $233M last year • New places to buy • IAM Market and IP3 Good time to be a buyer • Purchases by corporations have exceeded NPE purchases • IV is down, unlikely out • Reasonable to assume that remaining NPE’s are more sophisticated • Litigation risk from sold packages is much higher than previously reported (better source data) • NPE litigation • Reconsider your risk models • Reconsider membership in defensive aggregators NPE is down, but new litigation data shows much greater risk 22Copyright 2016 ROL
  23. 23. Business Sense • IP Matters Copyright 2015 ROL 23 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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