Tag Archives: Acacia

Record 20.4% move in 3Q for Public IP company stock index (PIPX)

Public IP licensing companies (PIPCOs) are very much alive and some company shares are doing surprisingly well, despite increased obstacles to patent licensing.  

PIPX reported a 20.4% gain for the 3Q vs. just 3.3% for the S&P 500.

It was the PIPX’s best performance since the index began tracking IP licensing companies in 2011. The PIPX is a capitalization-weighted, price-return measure of the change in value of this segment of publicly traded companies.

3q-2016-fig-2-screenshot

“InterDigital and Tessera, comparative giants in market value, were responsible for 20% of the index move,” said Dr. Kevin Klein, Vice President and GM of Products and Licensing at VORAGO Technologies, who compiles the data. “Acacia was the biggest individual gainer, up 48.2%; WiLAN was the biggest loser, down 39.4%. ”

High Volatility

It is difficult to attribute any one specific factor to the record quarter. However, PIPX has been volatile, and somewhat counter-cyclical since its inception. The index could be seen as a hedge against S&P 500 performance. Additionally, patent licensing and sales have started to come back, and patent damages awards are being paid, although at reduced amounts.

The Patent Trial and Appeal Board has been instituting fewer Inter Partes Reviews (down to about one-third of petitions filed), but is still seen by many as a somewhat arbitrary impediment to patent licensing and enforcement.

The value of $1 invested in the S&P 500 in Q3 2011 would now be worth $1.62 while the value of the same $1 invested in the PIPX would be $0.68.

PIPX Performance by Quarter 

3q-2016-fig-3-screenshot

Added to the index is FORM Holdings (NASADQ: FH), a diversified holding company that specializes in identifying, investing in and developing companies with superior growth potential. Removed were Vringo, which was absorbed by FORM Holdings, and Unwired Planet, which was delisted on June 18.

For the full 3Q report, go here.

Image source: PIPX Public IP Index

PIPEX patent company index falls 15.4% for 3Q, double the S&P 500

The PIPEX intellectual property sector stock index fell more than twice as much as the S&P 500 as the effects of the Alice and IPRs, in combination with a correcting stock market, came into play. 

Rambus, while loosing 18.6% in the quarter, still has gained 6.4% Year-to-Date, largely as a result of excellent 1Q and 2Q performance. Tessera and InterDigital stock which performed well in 4Q 2014, has less steep YTD declines (see YTD graph below).

The PIPEX index was down 15.4% vs. the S&P 500 which was lost 6.9%, its biggest quarterly drop since 2011. Unwired Planet was up 17.7 % for the quarter and Acacia 3.5%. For the previous 12 months, Surprisingly, InterDigital and Tessera were the leaders for 12 months, up 27.1% and 21.9% respectively because of a strong 2014 4Q.

3Q 2015 Fig 2 (labeled)

The PIPEX, provided exclusively to IP CloseUp by Dr. Kevin Klein, VP of Licensing for Freescale Semiconductor, is a “capitalization‐weighted price‐return measure of the change in value of this segment
of publicly traded companies.” The Index is designed to provide a measure of the market value and health of the intellectual property licensing business as a whole, while making it easier to identify individual performance. The stock performance of larger companies have a much more significant impact on the Index than those of the less highly valued. (See Fig. 4 weighting graph.)

The thirteen companies in the index are all publicly traded and at one time had a market capitalization of $100M or higher. Private companies such as Intellectual Ventures, Conversant and IPNav are not included, nor are struggling micro-caps like Inventergy.  Fortress, which provides loans to patent holders and is part of a large financial organization, also is excluded.

Year-to-Date

Parkervision and Marathon shares are down the most YTD, 79.1% and 78% respectively. Marathon announced a merger with Uniloc on August 14, which current shareholders may see as a mixed blessing. Eight of the thirteen companies that make up the index saw 12 month declines >40%; four did YTD, indicating a possibly improving trend for shares of some companies.

3Q 2015 YTD (labeled)

Conclusion

It is difficult to say if PIPCOs have hit bottom yet and are ready to rise. Certainly, as they adapt to changes in patent law, recent court decisions and the PTAB, those with larger, well-vetted portfolios, cash and patience are in the best position to prosper. For better or worse IPRs and the PTAB are a fact of patent licensing life which these businesses must learn to contend.

For the full PIPEX 3Q 2015 report go here.

3Q 2015 Fig 4 (labeled)

Image source: The PIPEX Intellectual Property Sector Index 

Selling Prices of NPE-Owned Assets Lag Despite High Quality

Some buyers prefer to pay a premium for a large but still vague patent portfolio than for a handful of proven rights.

“So, sue me,” seems to be the attitude of operating companies when confronted with SME or NPE-held patents that may read on their products and command high potential damages awards or settlements.

Strategic buyers are currently willing to pay a significant premium to market to operating companies for large portfolios (e.g. Google-Motorola) at a market-acceptable price-per-patent. A few extraordinary patents owned by NPEs appear to hold less interest, even if they are more valuable or have been upheld in court. The current acceptable price per patent seems to be under $1 million.

While cost should never trump quality for buyers of significant portfolios, buyers are showing that size and reputation for innovation does matter when it comes to what some companies are willing to pay. Also, no one wants to be accused of overpaying of having to play catch-up because of R&D miscalculations or legal oversights. For cash-rich and increasingly IP-savvy companies like Google and Apple, it is possible to become patent-competitive quickly, unlike Microsoft, which took a decade or more.

imgresThe effect is that many successful IT businesses are acquiring larger portfolios or families when they may currently require only a handful of patents for leverage. A few are able to slice and dice and resell or license parts from the portfolio to mitigate the acquisition cost and facilitate ROI.

A good example is Microsoft’s $1.1 billion acquisition of 925 AOL patents in April. A large part of that portfolio was re-sold to Facebook for $550 million leaving MS with key licenses and 275 patents. Microsoft paid $1.3 million per patent.

Acacia Technologies purchased ADAPTIX from private equity firm Baker Capital for $160 million in January for its 230 patents, some focusing on lucrative 4G inventions. The patents (acquired for approximately $695K each) were then licensed both to Microsoft and Samsung. The licenses may have enabled the purchase.

“Large patent holders have more liberty to generate sales than NPEs,” an IP industry deal-maker told IP CloseUp.

“Most NPEs buy small, focused and typically overlooked litigation-quality patents that need to be enforced to extract full value. For operating businesses, asset and seller reputation helps to command a higher purchase price, but what matters more than who is selling is the quality of the patents, focused evidence of use [what the patents, in fact, read on] and perceived pricing fairness. Currently, few large buyers consider enforcement an option.”

PatentFreedom’s database depicts the largest NPE holders. Of them InterDigital has sold for $375 million to Intel, or $220K per patent. Surprisingly few of even the largest NPEs have sold to an operating company. NPEs typically need to enforce patents to realize a significant return on them.

Defensive aggregator RPX bought NPE Digitude’s portfolio of what were AMD patents for $48 million. Altitude Capital Partners was a Digitude investor.

Jiaqing “Jack” Lu, PhD, CFA is the Chief Economist and a Senior Director for IP Market Advisory Practice (IPMAP) at the Applied Economics Consulting Group, Inc. In his article, “There is No Patent Bubble, Nor NPE Mania,” he notes that “some observers noticed that both the Nortel-Rockstar and Motorola-Google deals were concluded on a $750K per patent basis. Therefore, as the story goes, market price per patent was about $750K per patent.”

Dr. Liu goes on to show that “[The] average prices of the deals with non-NPE parties are two to three times of the prices of those with at least one party being a NPE. Especially, NPE buyers seem to pay average prices that are closer to what non-NPEs are paying, while NPE sellers are likely to receive the lowest prices among all market players.”

*     *     *

Operating companies are buying bigger portfolios at higher cost for multiple reasons, not just direct income.  High portfolio cost is less troubling to them than the perceived proper average cost per patent, as if buying in bulk can explain efficiency. Keeping the right patents out of the hands of the wrong holders (competitors or NPEs) also is meaningful to these buyers.

Strategic buyers are making it clear that it in some cases overpaying for a portfolio of assets or family of patents, including patents they are not likely to need or have little market value, is not always a bad thing if it facilitates their needs. It is somewhat important for them to obtain patents they need or may require (or that others do) without looking like they are desperate or are mitigating R&D or legal oversights.

Typically, less than 5% of an IT patent portfolio has any value. The percentage in an acquisition, I understand, is only slightly higher.

Seldom do we see a large company pay say $100 million or more for six extraordinary NPE-held patents. Even if they are worth ten times that, and even if they can be used against competitors. Their value will need to be proven repeatedly, a task most operating companies are unwilling, or unable, to perform, despite the brand presence they may add. .

One likely impediment for operating companies in acquiring NPE-owned patents is the difficultly of securing board-level buy-in, especially if enforcement is not an option. Another is the perception that litigation-tested patents are unseemly. Some of these businesses believe it is easier to buy a whole company (Motorola) than the 100 or so assets they believe they require for leverage.

It is only a matter of time when a financial buyer (i.e. hedge fund. private equity firm) buys an expensive patent portfolio, or IP-rich IT business, to keep it out of the hands of a party that needs the rights but does not act swiftly.

With some repackaging an investor with sufficient capital and vision can re-sell the portfolio, or company, to the right operating business for a hefty profit. It requires both smarts and guts. The investor would need to understand the assets thoroughly, as well as the demand. It also would need to be willing to enforce them, if necessary.

Illustration source: lexisnexis.com


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