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Secondary Patent Market: Buyers, Sellers, Pricing and Trends

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Mr. Richardson will present findings and projections on the brokered and secondary patent market including who is buying/selling patents, how much are they are paying, what technologies are hot, and what are the trends. Mr. Richardson is a partner in the Richardson Oliver Law Group (ROL Group) and for the past five years has published widely read patent sales reports for Bloomberg and IAM Magazine. The ROL Group tracks pricing, technology areas, buyers, and sellers for over 4,000 deals covering 95,000 patent assets across.

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Secondary Patent Market: Buyers, Sellers, Pricing and Trends

  1. 1. Business Sense • IP MattersBusiness Sense • IP Matters 1 Secondary Patent Market: Buyers, Sellers, Pricing, and Trends Kent Richardson SVIPLA – May 23, 2017 Contact Information: +1 (650) 967-6555 kent@richardsonoliver.com Copyright 2017 ROL
  2. 2. Business Sense • IP Matters Agenda Look back Market dynamics Prediction Copyright 2017 ROL 2
  3. 3. Business Sense • IP Matters What’s the Secondary Patent Market? 3 Seller Buyer Copyright 2017 ROL
  4. 4. Business Sense • IP Matters What Is in a Brokered Patent Package? • List of patents for sale, applicable market, infringement analysis (claim chart), background on the seller • 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) 4Copyright 2017 ROL
  5. 5. Business Sense • IP Matters LinkedIn – What You Can Do Over Four Years 2011 2016 5 0 500 1000 1500 2000 2500 # of Assets Portfolio Growth by Priority Year Organic Portfolio Projected Organic Portfolio 0 500 1000 1500 2000 2500 # Assets Total Portfolio by Priority Year Acquired Portfolio Organic Portfolio Copyright 2017 ROL
  6. 6. Business Sense • IP Matters Where Is the Patent Market Today? 6Copyright 2017 ROL
  7. 7. Business Sense • IP Matters Ten Years Ago Secondary Market 7 2007 IV the biggest buyer Few brokers AST and RPX Few capable buyers What’s a good deal? Copyright 2017 ROL
  8. 8. Business Sense • IP Matters Five Years Makes a Difference 8 2012 2017 Sources Transactions Pricing Capabilities Private Public Only WSJ published deals Quarterly public data Skewed Intellectual Ventures plus select companies Quarterly public data SMEs buying Copyright 2017 ROL
  9. 9. Business Sense • IP Matters Agenda Look back Market dynamics Prediction 9Copyright 2017 ROL
  10. 10. Business Sense • IP Matters Deal Flow 10 Sellers Buyers Direct Sales >1000 deals per year hit the market And 50+ more … Copyright 2017 ROL
  11. 11. Business Sense • IP Matters How Big Is the Patent Market? 11 $0 $2 $4 $6 $8 $10 $12 $14 2011-Q1 2012-Q1 2013-Q1 2014-Q1 2015-Q1 2016-Q1 2017-Q1 ROL Group Tracked Brokered and Private Market Cumulative Sum ($B) 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) $11 billion plus in patent packages 90 thousand plus patent assets 100 technology categories Copyright 2017 ROL
  12. 12. Business Sense • IP Matters What’s the Asking Price of a Patent? $260,640 12Copyright 2017 ROL
  13. 13. Business Sense • IP Matters Caveats – Sure There Are a Few 13Copyright 2017 ROL
  14. 14. Business Sense • IP Matters Asking Prices Reported Quarterly 14 Source: “Intellectual Ventures Back in Brokered Market in Q4,” Bloomberg BNA, March 10, 2017. https://www.bna.com/intellectual-ventures-back-n57982085043/ Copyright 2017 ROL
  15. 15. Business Sense • IP Matters Asking Prices Are Stabilizing 15 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 2012 2013 2014 2015 2016 $K Listing Year Average Asking Prices ($K) Price per US Issued Price per Asset Copyright 2017 ROL
  16. 16. Business Sense • IP Matters What’s Hot in the Patent Market Today 16Copyright 2017 ROL
  17. 17. Business Sense • IP Matters 0% 5% 10% 15% 20% 25% 30% 35% 40% 2012 2013 2014 2015 2016 Sales Rate Listing Year Projected Sales Rate by Listing Year Sales Rates Dropping or Shifting? % Sold by Year Listed – Bad Trend 17Copyright 2017 ROL
  18. 18. Business Sense • IP Matters 0% 5% 10% 15% 20% 25% 30% 35% 40% 2012 2013 2014 2015 2016 Sales Rate Listing Year Projected Sales Rate by Listing Year Sales Rates Dropping or Shifting? % Sold by Year Listed – Bad Trend % Sold as % Listed Per Year – OK? 18 0% 5% 10% 15% 20% 25% 2012 2013 2014 2015 2016 Year Sales in Calendar Year as % of Listings in Calendar Year Copyright 2017 ROL
  19. 19. Business Sense • IP Matters Some Brokers Are More Effective Than Others 19 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 Broker's 2015 Sales Rate 2015 Sales Rate 10.4% Copyright 2017 ROL
  20. 20. Business Sense • IP Matters Value for business purposes of a specific buyer Proportion of the patent market Value Distribution in the Secondary Market 20 Goal: Identify high-value patents to purchase (1-2% of market) ✓ Copyright 2017 ROL
  21. 21. Business Sense • IP Matters Sequencing Diligence is Critical 21Copyright 2017 ROL
  22. 22. 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 2016 Sale Year Operating Companies Dominate the Market 22 Source Richardson Oliver Law Group LLP, 2016 Brokered Market Report 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 Copyright 2017 ROL
  23. 23. Business Sense • IP Matters Sales by Sales Year – Five Years 23 OpCos are the biggest sellers NPE sales increasing – IV expected sell large number of assets Copyright 2017 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 2016 Sale Year 24 Operating companies now top buyers NPE buying is down to 32% from 42% IV buying dropped to only 13 packages down from 40 RPX is top single buyer Copyright 2017 ROL
  25. 25. Business Sense • IP Matters Buyers by Sales Year – Five Years 25 OpCos increasing their buying NPE down but not out Non-public companies buying increased from ~0% to 30% of company purchases 2012 2013 2014 2015 2016 Total Other 0% 3% 7% 2% 5% 4% Defensive Aggregator 11% 16% 22% 19% 19% 19% OpCo 41% 45% 31% 42% 41% 39% NPE 48% 37% 40% 36% 35% 38% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % of Package Sales Sale year Buyers by entity type Other Defensive Aggregator OpCo NPE Copyright 2017 ROL
  26. 26. Business Sense • IP Matters Top Sellers and Buyers 2016 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 26 Top Buyers by Package Countc 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 2017 ROL
  27. 27. Business Sense • IP Matters Litigation Analysis: You Can Model Your Risk Has Litigation Has IPR 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% 27 10.2% of sold packages are litigated – time to update models? Both sold and unsold packages are litigated post listing Defensive aggregator value may be greater than anticipated Copyright 2017 ROL
  28. 28. Business Sense • IP Matters Agenda Look back Market dynamics Prediction 28Copyright 2017 ROL
  29. 29. Business Sense • IP Matters Where Is the Market Going? 29Copyright 2017 ROL
  30. 30. Business Sense • IP Matters Trends and Predictions More international sales Prices – stabilized Sales rates – remain low Faster and simpler transactions expand market NPEs continue to buy – fewer buyers drive this part of the market More brokers leave 30Copyright 2017 ROL
  31. 31. Business Sense • IP Matters Copyright 2015 ROL 31 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 Copyright 2017 ROL
  32. 32. 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 $5-50K, other diligence is cheaper and can filter out many packages •Over 98% of the packages will not meet your business needs •Eliminate low value packages quickly •Bidding and pricing •Management buy-in Key challenges 32Copyright 2017 ROL
  33. 33. Business Sense • IP Matters Operational Challenges of Patent Buying • Too many potential deals (more than 500 per year, ~8K assets) • Too few deals that will meet your needs • 1-2% of the deals have the potential to meet your needs • Looks like a corporate development or VC problem Problems of abundance and scarcity • Define success in an actionable way. Define business driven criteria that automatically eliminates undesirable patents • Prioritize low cost/high impact diligence first • Work with Finance to budget and model your program • Sell your program internally • Building the community relationships with the brokers and sellers • Tag and track your deals. Allows you to analyze your program and reduces duplicate work • Where problems in otherwise good patents are identified, find answers • Accept that you will miss some deals Best practices for patent buying 33Copyright 2017 ROL
  34. 34. Business Sense • IP Matters Importance of Sequencing Diligence: Value Distribution in the Brokered Market 34 Stage 1: General Tech Filter ($) Stage 2: Targeted Tech Filter ($$) Stage 3: Patent Validity and Prior Art Analysis ($$$) Stage 4: Building and Testing EOUs ($$$$) X X X X ✓ ✓ ✓ ✓ ✓ 100% of the Patent Market Copyright 2017 ROL
  35. 35. Business Sense • IP Matters Process Overview: Example Filtering and Relative Diligence Costs 35 ROL package database Search results candidate pool Preliminary human filtering Detailed filtering Test availability and EOU creation Further testing Bidding and buying 2050 500 100 50 10 5-7 1-3 Packages Remaining $ $ $$ $$ $$$ $$$$ $$ Relative Diligence Costs Copyright 2017 ROL
  36. 36. Business Sense • IP Matters Company A’s Patents Company A’s Revenue LinkedIn’s Revenue Product A Product BProduct C Typical Patent Defense Considerations 36 Company to Company • Revenue generation • Create freedom to operate – remove patent risk • Strategic/business interference Patent asserter’s goals Patents Copyright 2017 ROL
  37. 37. Business Sense • IP Matters LinkedIn’s Ecosystem of Patent Risk 37 Patent threats come from LinkedIn’s near ecosystem What is LinkedIn’s business ecosystem? Corporate asserters LinkedIn’s potential patent risk Partners Suppliers Competitors Customers Copyright 2017 ROL
  38. 38. Business Sense • IP Matters LinkedIn’s Ecosystem of Patent Risk - Filtered 38 LinkedIn’s potential patent risk ?? ? ?? ? ? LinkedIn Which risks is LinkedIn going to address? Copyright 2017 ROL
  39. 39. 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 39Copyright 2017 ROL
  40. 40. Business Sense • IP Matters Target Filing Rate (Based on R&D Spend) 40 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 Fillings per $M R&D Goal of Patent Program Target Patent Filings per $1M of R&D Spend 2.0 LinkedIn’s Target Filing Rate Copyright 2017 ROL
  41. 41. Business Sense • IP Matters LinkedIn’s 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 41 0 500 1000 1500 2000 2500 3000 3500 4000 # of Assets Portfolio Growth by Priority Year Organic Portfolio Large Corprate Asserter Projected Organic Portfolio 0 500 1000 1500 2000 2500 3000 3500 4000 # Assets Total Portfolio by Priority Year Acquired Portfolio Organic Portfolio Large Corprate Asserter Copyright 2017 ROL
  42. 42. Business Sense • IP Matters 0 200 400 600 800 1000 1200 1400 Pre-2012 2016 Portfolio Internal Purchased LinkedIn’s Patent Strategy Actuals •Growth of >1000% increase in new filings versus pre-2012 •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 910 patents purchased •Strategic purchases •Failed high profile startups •Brokered patent market •Private corporate sellers •Bulk purchases •Large purchases from select corporate sellers Patent purchases 42Copyright 2017 ROL
  43. 43. Business Sense • IP Matters Asserting Company's 2003 Organic Filings LinkedIn's 2013-2016 Targeted Buying # of Patents 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 43Copyright 2017 ROL

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