Tag Archives: AOL

An AT&T-Time Warner deal may affect the value of more than premium content & copyrights

The $85.4 billion buyout of Time Warner Corporation (TWC) by AT&T, if it goes through, is a good omen for the value of content providers, like HBO and CNN.

It is unclear, however, how the ambitious acquisition will affect less well-branded copyright holders like independent film productions, TV studios and recording artists dependent on digital distribution.

If content is now truly king, the tide may rise broadly, and rather rapidly.

If nothing else, the proposed acquisition conveys a heightened respect for content – and willingness to pay premium for it – that Google, its YouTube subsidiary and others have heretofore been reluctant to acknowledge.

“The deal is probably neutral for copyrights, but it has the potential to be positive,” one purveyor of music and the content told me from Los Angeles. “The combined entities will still be about half the size of Google, and will be saddled with $120 billion in debt. With those numbers, AT&T’s 5.1% dividend may longer be a given.”

Time Warner is the world’s largest diversified media company.

AT&T’s $107.50 per share offer is 35% premium over its market value. You have to wonder what the transaction might do to secondary content brands like indie labels and movie producers. It’s not just about having a great lineup, but about the particular content that Internet provides believe audiences will crave, which is currently in flux.

AT&T is betting that premium content will matter deeply. Other streaming services are not so certain.

The Future of TV & Broadband

If all of this sounds a bit speculative,” reported The New York Times, “that’s because it is. What this deal actually symbolizes is that the future of television is increasingly going to be built on lots of bold, possibly speculative, experiments.”

Recent acquisitions by Verizon included AOL and Yahoo, which some view as content. I tend to believe that content protected under copyright, and premium content (HBO, CNN) will certainly benefit.

time-warner-1-1024x390

This chart represents TWC prior to the sale of  AOL to Verizon.

 

Bad Business or Goog Timing?

Is the AT&T-TWC deal inherently anti-competitive or merely timely recognition of undervalued assets? After the deal will all content delivery continue to be treated fairly on the AT&T network so far as delivery speeds are concerned?

Will Disney, Comcast – which had acquired NBC-Universal – and Fox move swiftly to shore up their own content?  It’s too soon to tell, but there may be more pressure on Google to become more proprietary with regard to content (and maybe patents) than it has in the past.

It also will be interesting to see if there is a ripple effect on streaming content like music with services like iTunes, Pandora and Spotify.

A list of assets owned by TWC can be found here.

Image source: cnn.com; valuewalk.com

Vringo’s Potential $1b in Google-AOL Patent Case is not Yet a Win

While the court’s decision to enhance damages last week is a big positive, Google is unlikely to accept defeat without a fight.

Vringo, Inc.’s shares shot up 20% last Wednesday after a district court ruled that the result of the enhanced damages calculation on its AdWords infringement case involving AOL and Google could exceed $1 billion. The  stock was trading is less lofty heights by Friday when investors had time to take stock.

The court’s “Memorandum Opinion and Order” set the appropriate ongoing royalty rate for continued infringement of its patents is 6.5% of the 20.9% royalty base previously established. All told, the new rate and past awards, reports the Motley Fool, are collectively worth around $1 billion for Vringo.  

Mark Argento who follows Vringo (VRNG) for Lake Street Capital said, “We estimate this royalty rate could result in an incremental $1.2 billion in future royalties based on out estimates of Google’s AdWords business gogdollardomestically over the life of the patents. The $1.2 billion would be incremental to the damages the jury awarded and the Judge calculated for past and supplemental damages of approximately $47 million.”

Maulin Shah of Envision IP told me that he was surprised of the District Court awarded a 6.5% ongoing royalty, which pretty close to the 7% I/P Engine, Vringo’s IP subsidiary, had asked for based on a willful infringement argument.

“As for the royalty base,” he said, “I/P Engine has asked for the 20.9% figure, and I do not believe Google made any arguments during trial for a lower base. Google’s post-trial argument for a 2.8% royalty base was reverse engineered from the jury award.  While it appears high, without any substantive arguments from Google, it seems reasonable to me that the judge used I/P Engine’s figure.”

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While last Wednesday was a very good day in court for Vringo, investors would be wrong to believe that Google and AOL will be writing a check for $1b or more anytime soon, if at all. Vringo must continue to pursue its case against these infringers, while managing its other IP assets and investor expectations. The company had announced on New Year’s Day that it had singed a deal to divest itself of its ringtone operating business. 

The pull-back of VRNG’s shares to mid-day Monday to $4.11, or only about 4% above the price prior to the court’s decision, and well below their big move last week, may be an indication that investor expectations are becoming more realistic when it comes to the patent “home run” derby, despite the bold headlines.

A previous dispute involving VRNG and GOOG had been estimated as resulting in $700m in damages. The court capped the award at $31m. It’s being appealed, as is a decision reported in today’s IP Law 360 that one of the Vringo Inc. patents that Google Inc. was recently ordered to pay an ongoing royalty for infringing has been preliminarily rejected by the U.S. Patent and Trademark Office. Vringo said Friday, adding that it was confident the decision would be reversed.

It is still too early to tell whether or not the pull-back in VRNG shares is a sign that interest in public IP companies is maturing appropriately, and that PIPCOs as a group are starting to be regarded as ongoing businesses worthy of industry status. 

Image source: emerging growth.com; mentecritia.net 

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.”

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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

Bold Patent Moves Bolster Facebook, MSFT

Cash Rich, IP-Savvy MSFT Embraces Role of Patent Dealmaker

After acquiring 800 patents and scores of applications and licenses from AOL for $1.1B just two weeks ago, Microsoft has said that it has flipped the bulk of the portfolio, 650 patents, to Facebook for $550M, securing the IP assets and licensing MSFT needs while recouping almost half of its original potentially bargain cost.

It was reported today in Venture Beat that MSFT wanted to partner with FB all along, but that AOL put the cabash on it. IP CloseUp is not buying that.

In a pre-IPO buying frenzy that has to concern some shareholders, FB has a costly portfolio of quality patents to its $1B acquisition of Instagram two weeks ago. You have to wonder if investors believe that despite FB’s lofty market valuation whether it has the firepower to succeed as a major growth company. These recent moves are sure to help. In March, Yahoo sued Facebook, alleging Facebook violated ten Yahoo patents related to online advertising and web communications.

“Stinking Mad”

Sources have told IP CloseUp that Facebook was “stinking mad” that it did not land the AOL patents when they went up for bid several weeks ago, confiding that the failure had more to do with process than cost. MSFT emerges a huge winner, with patents its needs for far less than their true market value (see “Could AOL Patent Sale Have Netted More Than $1B?”) and cash in hand.

You have to wonder how the AOL deal got done. With investor pressure from Starboard Value the company may have been spooked into taking what appeared to a best offer before others were on the table.

“The market was talking about $300M,” speculated one observer. “MSFT may have offered a billion plus if the deal got done immediately.” It did, much to Facebook’s chagrin (and Google’s and Apple’s) and others who may have wanted a shot at controlling AOL’s excellent portfolio, which included original Netscape Internet patents.

A post on the IAM Blog today raised good a question. Will a Department of Justice anti-trust team soon be mobilized to see how recent patent sales are being orchestrated given that some appear to be barely marketed?

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For the patent wars this marks new territory. Smart combatants with cash and guts are well-equipped to play. 

Illustration sources: hubspot.com; heavy-downloads.blogspot.com

Could AOL Patent Sale Have Netted More Than $1B?

Investor Pressure May Have Triggered a “Too-Quick” Sale

It was widely reported yesterday that AOL Inc. (NYSE: AOL) on Monday agreed to sell more than 800 patents and related products to Microsoft Corp. (NASDAQ: MSFT) for $1.056 billion. It was also written that the struggling online services provider was under pressure from activist investor Starboard Value, holder of 5.2% of AOL’s shares.

AOL shares were up 43% for the day.

Experts caution the $1.3M paid per patent for the portfolio, among the highest on record, should not be the focus of this transaction or its meaning. Two experienced patent managers told IP CloseUp that they believe perhaps 25 or 30 patents generated the bulk of the immediate value to Microsoft, but which ones remain somewhat of a mystery. AOL, in business since the 1980s, is not new to the patent game. Early priority dates on some of their patents covering Internet security, communications and transactions are certain to be useful in negotiating with competitors today or down the road.

Clearly, the patents are worth more in the hands of cash-rich Microsoft than AOL. And from Microsoft’s perspective, it is important they stay out of the hands of their rivals.

According to the WSJ story patent valuation firm M-Cam, Inc. had appraised the patent portfolio at $290m, and Clayton Moran, an analyst with Benchmark said “Most on the Street viewed $300 million as the likely maximum value.” These value estimates appear to have been dramatically off.

Another View

One IP transaction expert who had reviewed some of the patents had a slightly different take on the deal. He thought that while the sale price appeared more than fair, some of the patents are truly fundamental, and a more methodical and inclusive sale process may have netted more for AOL shareholders.

“Based on the patents that I examined I thought the entire AOL patent portfolio could be worth as much as $1.79B, the entire market cap of the company,” said Rob Aronoff, Managing Partner of Pluritas, LLC, an IP transactions firm that Brody Berman Associates has advised. “At least several fundamental patents were included in the core portfolio, and my informal assessment indicated that full portfolio value of all AOL’s 1,100 patents without the business operations was probably in the area of $1.4B. Had there been more time for a marketing effort by Evercore Partners instead of a rush to sale the AOL may have gotten closer to the full $1.79B company value.”

“This transaction appears to have been rushed into the marketplace on a relative basis when compared to other major patent sales like Nortel and Motorola Mobility,” concludes Aronoff, who is based in San Francisco. “The beneficiary appears to be Microsoft. The approximately one-month sales process does not appear to have been played out to the benefit of the all shareholders.

“The call for bids was made only Friday of last week, and they have already awarded the patents, with no further rounds of bidding to Microsoft, on whose benefit Evercore had recently conducted a complex transaction regarding ADAPTIX.

“Had the process taken say three months AOL may have gotten Google, Apple and possibly others interested enough to bid higher. $1B may sound like a lot to pay for 800 patents and licenses, but for these timely rights the price may be more of a bargain than many had imagined.”

Illustration source: glossynews.com; syracuse.com


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