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