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Patent Market 2017: Buyers, Sellers, Motivations & Prices?

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What are the driving forces behind the patent market in 2017? We examine the current trends and companies shaping the patent market for this year, as well as the various winning IP proliferation strategies outlined by noteworthy companies.

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Patent Market 2017: Buyers, Sellers, Motivations & Prices?

  1. 1. Business Sense • IP MattersBusiness Sense • IP Matters 1 Patent Market 2017: Buyers, Sellers, Motivations & Prices? Kent Richardson & Michael Costa February 13, 2017 Contact Information: +1 (650) 967-6555 kent@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 Litigation rates How to Buy Effectively? Corporate patent buying overview Copyright 2015 ROL 2
  3. 3. Business Sense • IP Matters Case Study: Why Trade in Patents? •LinkedIn’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 •LinkedIn faced the risk of defending against significant patent assertions •NPEs (IV, small NPEs) •Corporate patent asserters (Microsoft, IBM…) The story of LinkedIn – the challenge •IBM ~$1B/Year in IP licensing revenue for ~25 years •Samsung pays Rambus $900M to settle patent and antitrust claims •Yahoo licenses Google for $260M in stock (2004) realizing a $1.4B gain on the deal •LTE royalties on Samsung Galaxy = ~$55/phone (2014 estimate) How big a challenge? Examples Companies With Similar Challenges Copyright 2015 ROL
  4. 4. Business Sense • IP Matters Company A’s Patents Company A’s Revenue LinkedIn’s Revenue Product A Product BProduct C Typical Patent Defense Considerations 4 Company to Company Copyright 2015 ROL • Revenue generation • Create freedom to operate – remove patent risk • Strategic/business interference Patent asserter’s goals Patents
  5. 5. Business Sense • IP Matters High Tech Patent Licensing Dynamics Revisited AssertCo Mindset Many questions What price point for a deal? How much can they pay? What’s my risk of being sued? How tough is DefendCo? What non-monetary benefits are we getting? … How do I achieve the affect I want? … How is the rest of my portfolio perceived? How many patents do I need to show are infringed? DefendCo Mindset Do we really have a problem? Asserter’s reputation? Capability, commitment, resources? Price point? What is our reputation and past experience? How is our business doing? … What do I have to do and show to avoid a deal or get the best deal? … What damages models? How much diligence do I need to perform until I’m comfortable? Other stakeholders? How long can I engage the asserter? What else is in the asserter’s portfolio? What’s in mine? What do I have to show my team to convince them that a deal makes sense? What patents do we “infringe”? 5
  6. 6. Business Sense • IP Matters LinkedIn’s Ecosystem of Patent Risk 6 Patent threats come from LinkedIn’s near ecosystemWhat is LinkedIn’s business ecosystem? Corporate asserters LinkedIn’s potential patent risk Copyright 2015 ROL Partners Suppliers Competitors Customers
  7. 7. Business Sense • IP Matters LinkedIn’s Ecosystem of Patent Risk - Filtered 7 LinkedIn’s potential patent risk ?? ? ?? ? ? LinkedIn Which risks is LinkedIn going to address? Copyright 2015 ROL
  8. 8. Business Sense • IP Matters 0 200 400 600 800 1000 1200 1400 Pre-2012 2016 Portfolio Internal Purchased ? LinkedIn’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 LinkedIn’s counter- assertion portfolio • Ongoing continuation practice of current portfolio Execution 8Copyright 2015 ROL
  9. 9. Business Sense • IP Matters Target Filing Rate (Based on R&D Spend) 9 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5 No Defined Goal Product Coverage to Deter Copying Freedom to Operate Outbound Licensing Fillingsper$MR&D Goal of Patent Program Target Patent Filings per $1M of R&D Spend 2.0 LinkedIn’s Target Filing Rate
  10. 10. Business Sense • IP Matters LinkedIn Addresses Patent Deficit with Bought and Organic Growth Pre Implementation: Gap Between LinkedIn and Likely Asserters Post Implementation: Organic Filings and Patent Purchases Address the Challenge 10Copyright 2015 ROL 0 500 1000 1500 2000 2500 3000 3500 4000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 #ofAssets Portfolio Growth by Priority Year Organic Portfolio Large Corprate Asserter Projected Organic Portfolio 0 500 1000 1500 2000 2500 3000 3500 4000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 #Assets Total Portfolio by Priority Year Acquired Portfolio Organic Portfolio Large Corprate Asserter Thisisbad Muchbetter!
  11. 11. Business Sense • IP Matters Asserting Company's 2003 Organic Filings LinkedIn's 2013-2016 Targeted Buying #ofPatents Targeted Buying Not applicable to current negotiation Valuable to current negotiation LinkedIn’s 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 11
  12. 12. 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 Litigation rates How to Buy Effectively? Corporate patent buying overview Copyright 2015 ROL 12
  13. 13. 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 13Copyright 2015 ROL
  14. 14. Business Sense • IP Matters How Big Is the Patent Market? 14 •Since 2011 we have tracked over $11B in patent packages across more than 90,000 patent assets •Over 100 technology categories represented across hardware, software, communications; including automotive-specific categories Substantial market •772 packages, over 11,000 assets •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 $14 2011-Q12011-Q22011-Q32011-Q42012-Q12012-Q22012-Q32012-Q42013-Q12013-Q22013-Q32013-Q42014-Q12014-Q22014-Q32014-Q42015-Q12015-Q22015-Q32015-Q42016-Q12016-Q22016-Q32016-Q42017-Q12017-Q22017-Q3 Cumulative sum of asking prices ($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)
  15. 15. 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? 15Copyright 2015 ROL
  16. 16. 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 16Copyright 2015 ROL
  17. 17. 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: 17Copyright 2016 ROL
  18. 18. Business Sense • IP Matters What’s Hot in the Patent Market Today 18Copyright 2016 ROL
  19. 19. 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 19 •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
  20. 20. Business Sense • IP Matters Market Context: Data Analysis Reveals Top Patent Brokers 20 •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 SalesRate 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
  21. 21. Business Sense • IP Matters Market Context: 2016 Pricing Stabilization 21 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 •Asking price 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
  22. 22. Business Sense • IP Matters Can You Show Infringement and Why It Matters 22 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 •An infringement showing or Evidence of Use (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
  23. 23. 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 23 •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
  24. 24. 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 24 •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 step in 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
  25. 25. Business Sense • IP Matters Litigation Analysis: You Can Model Your Risk 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% 25 • 10.2% of sold packages are litigated so now you can build a risk model reflecting your risk of being sued • Previous litigations also increase likelihood of sale 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
  26. 26. Business Sense • IP Matters Q0 Overall NPE 96% 86% OpCo 4% 14% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% %ofLitigations Distributions of OpCo vs NPE Litigations 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 Cumulative%ofNPELitigations 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 26 •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% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Cumulative%ofOpCoLitigations 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
  27. 27. 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 Litigation rates How to Buy Effectively? Corporate patent buying overview Copyright 2015 ROL 27
  28. 28. Business Sense • IP Matters Corporate Buying Program - Overview •Reduce exposure to corporate patent assertions by building a counter-assertion portfolio •Examples of active corporate asserters include IBM, Qualcomm, Microsoft •New asserters rise, especially when revenues are down Primary goal: Defensive counter-assertion •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 $5-50K, other diligence is cheaper and can filter out many packages •Over 98% of the packages will not meet your business needs •Eliminate low value packages quickly •Bidding and pricing •Management buy-in Key challenges 28Copyright 2015 ROL
  29. 29. Business Sense • IP Matters Operational Challenges of Patent Buying • Too many potential deals (more than 500 per year, ~8K assets) • Too few deals that will meet your needs • 1-2% of the deals have the potential to meet your needs • Looks like a corporate development or VC problem Problems of abundance and scarcity • Define success in an actionable way. Define business driven criteria that automatically eliminates undesirable patents • Prioritize low cost/high impact diligence first • Work with Finance to budget and model your program • Sell your program internally • Building the community relationships with the brokers and sellers • Tag and track your deals. Allows you to analyze your program and reduces duplicate work • Where problems in otherwise good patents are identified, find answers • Accept that you will miss some deals Best practices for patent buying 29
  30. 30. Business Sense • IP Matters Valueforbusinesspurposesofaspecificbuyer Proportion of the patent market Importance of Sequencing Diligence: Value Distribution in the Brokered Market 30 Goal: Identify high-value patents to purchase (1-2% of market) Copyright 2016 ROL ✓
  31. 31. Business Sense • IP Matters Importance of Sequencing Diligence: Value Distribution in the Brokered Market 31 Stage 1: General Tech Filter ($) Stage 2: Targeted Tech Filter ($$) Stage 3: Patent Validity and Prior Art Analysis ($$$) Stage 4: Building and Testing EOUs ($$$$) X X X X ✓ ✓ ✓ ✓ ✓ 100%ofthePatentMarket
  32. 32. Business Sense • IP Matters Process Overview: Example Filtering and Relative Diligence Costs 32 ROL package database Search results candidate pool Preliminary human filtering Detailed filtering Test availability and EOU creation Further testing Bidding and buying 2050 500 100 50 10 5-7 1-3 Packages Remaining Copyright 2015 ROL $ $ $$ $$ $$$ $$$$ $$ Relative Diligence Costs
  33. 33. Business Sense • IP Matters Conclusions • Billions of dollars of patents brought to market every year • Total 2016 brokered patent market sales $165M • Private market is much bigger (5-10X) • Diverse technology areas • Asking prices have stabilized at $197K per asset • Sales rates remain relatively low, projected to be 21% Patents secondary market reflect liquidity of the assets • Market analysis, litigation analysis, feed risk reduction models • Models drive ROI analysis • Combining organic patent development and buying addresses strategy challenges • Organic growth addresses long term strategic challenges • Purchased patents are effective for counter-assertion Risk mitigation strategy models benefit from market data 33Copyright 2015 ROL
  34. 34. Business Sense • IP Matters Copyright 2015 ROL 34 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 kent@richardsonoliver.com

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