Tag Archives: Facebook

Tax Cuts and Jobs Act: Some IP holders may benefit, most won’t

April 3, 2018 by Bruce Berman 0 Comments

The Tax Cuts and Jobs Act of 2017 places some IP rights holders squarely in the sights of the tax collector, while providing others with an opportunity to license overseas without having to resort to international asset transfers to maximize returns.

Patent, trademark and copyright owners of all sizes would be wise to revisit the nature and tax implications of their transactions, including direct patent sales, as well as where their IP assets are best located. This is a direct result of the Tax Cuts and Jobs Act of 2017 (TCJA), the impact of which on IP holders is starting to be understood.

The new law is partly a response to businesses that hold massive amounts of revenue-producing assets outside the United States in so-called ‘patent boxes’ – devices which allow revenue on assets held within them to escape most local and all domestic taxes derived from IP-related revenue.

Like Wildfire

“Patent boxes have spread like wildfire,” Edward Kleinbard, former chief of staff of the US Congress’s Joint Committee on Taxation, now a law professor at the University of Southern California told the Intangible Investor. “Their success was doomed from the start. The international environment for intangibles and tax has evolved. With more products to license from sources worldwide and more revenue derived from them, these devices, which originally were restricted to a handful of nations, have become diffuse.”

The most famous (or infamous) product of the IP asset tax avoidance schemes, known as the “double Irish,” has been used by large corporations, including Facebook Inc, Google parent Alphabet, Inc and drug maker Allergan PLC.

The TCJA aims to lure IP locations back to the US, but whether the benefits are sufficiently attractive is still unclear. The Wall Street Journal coverage of the TCJA can be found here. For the American Enterprise Institute take on the Act, go here.

Rana Foroohar, a journalist who reports for the Financial Times, says in a video that a growing “tech-lash” (backlash) against the imbalance of power generated by U.S. tech giants extends to how they use proceeds from overseas licensing revenues to buy foreign bonds. Curtailing this activity has the potential to cause disruption in the bond market and interest rates, she says. Foroohar’s video clip on the potential ramifications of tax increases can be found here.

Self-Licensing

Rather than licensing to themselves (or the entities they control) to generate income that avoids taxes and use those proceeds to invest in corporate bonds, techcos might consider generating genuine IP revenues, as well as taking, and paying for, licenses they need from other holders.

For the full Intangible Investor story, “Identifying the impact of the US tax act,” in the May IAM magazine out this week, go here.

Image source: brodyberman.com

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“Strong IP Drives the Bottom Line” is theme of 2018 LESI Annual Conference

March 20, 2018 by Bruce Berman 0 Comments

This year’s Licensing Executives Society International (LESI) Annual Conference will have a financial focus and take place in San Diego April 20-May 1.

The plenary session keynote address by Mike Hoefflinger, “Think You Know Facebook’s Story …Think Again, and Learn Along the Way,” will look at the IP story behind the story.

After working directly for Andy Grove at Intel and as general manager of the Intel Inside program, Hoefflinger moved to Facebook to serve as Head of Global Business Marketing working with Sheryl Sandberg and Mark Zuckerberg.

Other LESI sessions include:

  • Doing Major Life Sciences Deals: The Keys to Success
  • Standard Essential Patent Licensing: Yesterday, Today and the Future
  • Best Practices For, and Latest Developments Regarding, Cyber-Security
  • Know-How Licensing

  • Artificial Intelligence: The IP Behind Disruption
  • Using Intellectual Property to Secure Debt Financing for Startups & Growth Companies
  • Blockchain and Cryptocurrency: New Tools for the Digital Economy
  • An International Perspective on Licensing in China: Experiences and Avoiding Potential Pitfalls

On May 2, LESI’s half-day Global Technology Impact Forum will feature keynote William J. Merritt, President and CEO of InterDigital.  GTIF is focused on managing IP issues for socially-beneficial business projects in less developed countries. The agenda and reservation can be found here.

For the full LESI meeting schedule, go here.

For the list of more than 60 speakers, go here.

To register, go here. For CIPU reader discount, use registration code “LESIMP-IPCU”

Image source: lesi.org; saba.com

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Patents’ early role in creating leading tech businesses eyed

October 30, 2017 by Bruce Berman 0 Comments

Some information technology companies dubious about strong patents that can be used to restrict their activities or force them to pay licensing fees, appear to have benefitted from securing patents early in their life-cycle.

It’s doubtful whether their early patent success can be similarly reproduced today.

According to a post on the IPfolio blog, a diverse group of IT companies that drew early on patents includes Dropbox, FireEye, Zynga, Square, Facebook, Theranos, SolarCity, GoPro and Apple. 

“[Some] startups remain true to the original vision of the founders,” writes IPfolio. “By analyzing their first patent filings, it’s easy to see which ones have remained committed to plans likely first sketched on a whiteboard in a spare bedroom. In many cases, these ‘seminal patents’ closely describe what the company stands for today.”

“Here are the first patents granted to ten of Silicon Valley’s hottest companies. Fledgling startups when they first filed to protect their intellectual property, they’ve since created billion-dollar businesses around the seminal inventions.” For the full story, go here.

Apple: Microcomputer for use with video display (1977)

Decades before Apple expanded into mobile communication, music distribution and timepieces, it was synonymous with digital design. Steve Jobs’ less well-known co-founder Steve Wozniak invented a method for displaying color and high-resolution graphics using a standard cathode ray tube, which this April 1977 filing described. It was Apples’ first patent.

Google: Method for node ranking in a linked database (1998)

Above is Google’s famous PageRank patent, it’s first. Larry Page’s invention valued a webpage based on how many other pages linked to it. Filed in January 1998, the approach provided a significant improvement in the quality of search results, a key factor in Google’s rise as the dominant search engine. The original assignee was Stanford University, which received 1.8 million shares of Google stock in exchange for a long-term license.

Taken Seriously

For most of the ten tech high-fliers noted by IPfolio, strong patent protection helped them to be taken seriously. For others, like Theranos, the patents could not save a flawed business model and questionable leadership.

It is doubtful whether unicorns and other start-ups today can rely on patent protection to build their businesses in the way successful tech companies were able to in the recent past. There is too much uncertainty about what is patentable and what is a valid patent.

 

Image source: IPfolio.com

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Financial Times article slams US patent syst for business model bias

October 23, 2017 by Bruce Berman 0 Comments

An article that appeared last week in the Financial Times calling into question the effectiveness of a U.S.  patent system dangerously weakened by bad legislation and a false narrative about patent “trolls,” has won praise for its accuracy and honesty.

In a rare instance of serious business reporting on intellectual property rights, award-winning journalist, Rana Foroohar, slammed Silicon Valley companies that have endeavored to impede patent licensing and diminish innovation challenges from companies they cannot control.

“Indeed, the only ones that seem not to be complaining about the current system are a handful of the biggest Silicon Valley companies — including Google, Apple, Intel and Cisco.” While they all have their own patents to protect, their business models, which involve products that include hundreds or even thousands of bits of IP, tend to do better when there are fewer patents to deal with.

“But small and mid-sized software and hardware suppliers as well as life sciences companies have very different business models — ones that live or die on the ability to protect a handful of patents, and thus monetise their years of investment. For many of these companies, the shifts in the system that began a decade ago have gone too far.”

Several small and large patent holders told IP CloseUp that the FT deserves praise for finally getting the patent story right, one calling it a “breath of fresh air.”  Many believe that the business press has failed to report accurately about the patent system, and has served to blow the patent “troll” narrative way out of proportion, especially for those outside of the IP industry.

FT allows subscriber access to the Foroohar article, “Big Tech vs Big Pharma: the battle over US patent protection,” here. [Oddly, the title does not reflect the depth of the piece. Perhaps a more explicit one may have been too much for some readers or editors?]

For a free version of the article that ran on CNBC, go here.

Tech Titans

Much of Ms. Forhooar’s recent reporting in the FT has dealt with the rise of what she calls tech titans, many of which are attempting to maintain their dominance by keeping the patent playing field uneven and potential competitors at bay.

She has served as correspondent and reporter for CNN and Time, and spent 13 years at Newsweek, as an economic and foreign affairs editor and a foreign correspondent covering Europe and the Middle East. For a list of her recent articles, go here.

Forhooar has won many awards for her reporting and has received several journalism fellowships. She is a life-member of the Council on Foreign Relations and has written a book, Makers and Takers: The Rise of Finance and the Fall of American Business.

“Big Tech vs. Pharma” sets a sorely needed benchmark for the business press for reporting accurately on the intellectual property. Covering the impact that changes in the patent system have wrought, and who are the real beneficiaries, is both a challenge and an opportunity.

Image source: twitter.com; lovespace.co.uk

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New book: tech elites’ disregard for privacy & IP must be managed

May 4, 2017 by Bruce Berman 0 Comments

Can Internet monopolies – adept at providing at providing information – be prevented from violating the rights of individuals, businesses and IP holders, and impeding innovation?

They can if they are regulated like utilities, says Jonathan Taplin in his new book, Move Fast and Break Things.

In 2009, Mark Zuckerberg told Business Insider publisher and former Wall Street analyst Henry Bloget, “Move fast and break things is Facebook’s prime directive to developers. Unless you are breaking stuff,” Zuckerberg said, “you are not moving fast enough.”

Eight years later, this Facebook mantra has taken on a darker meaning. A new book by Hollywood producer and former USC Annenberg Innovation Lab director, Taplin (Mean Streets, The Last Waltz), offers a portrait of technology giants without restraints, routinely violating the rights of creatives, consumers and innovators, and propping up their own shares at the expense of investing in the future.

Subtitled How Facebook, Google and Amazon Cornered Culture and Under-mined Democracy, Move Fast and Break Things dissects the inordinate power of a handful of the popular companies and their founders, and what it means for culture, innovation, and personal freedom.

What Taplin does best is connect the dots by distinguishing between true break-through ideas and the ability to provide and mine data, especially personal information, for profit and dominate markets. The confluence of vision, ego, and wealth is for Taplin a dangerous mix that needs to be carefully watched if not closely monitored. Copyright and patent holders need to be especially wary.

Don’t Ask Permission

“The co-founder of YouTube, Chad Hurley, was a PayPal alumnus, schooled in Peter Thiel’s philosophy,” writes Taplin. “He built his company on the same ‘don’t ask permission’ ethic the Larry Page had embraced… ‘Who will stop me?’ [A phrase which can be found in Ayn Rand’s controversial novel, The Fountainhead.] This became the center tenet of Internet disrupters, from Thiel’s PayPal right up to Travis Kalanick’s Uber.”

Taplin writes that Google, who championed the tagline for its corporate code of conduct, “Do no evil,” controls 88% of online searches and search advertising, while Facebook has 77% market share in social media and Amazon a 70% share of e-book sales. He does not consider Apple a monopoly because its main hardware business has many competitors.

“The tech elites jealous guarding of its own monopoly platforms,” says Taplin, “is built upon a blatant disregard for the artist’s intellectual property.”

“More people than ever are listening to music, reading books, and watching movies, but the revenue flowing to the creators of that content is decreasing while the revenue flowing to the big four platforms is increasing. Each of these platforms presents a different challenge for creators. Google and YouTube are ad-supported ‘free-riders’ driven by a permission-less philosophy.”

Permission-less free-riding, or “efficient infringement” in has also come to dominate other parts of the IP workplace, rendering simple patent licenses more arduous than ever.

Consent Decree

How does Taplin propose we prevent Internet monopolies from violating the rights of individuals, businesses and IP holders, and impeding innovation? You regulate them like utilities.

It would be very difficult for many people and businesses to live without Amazon, Google, YouTube and Facebook, but it is becoming impossible for many who produce intellectual property to live with them.

This is not something that their founders and shareholders want to hear, but it may be inevitable. Europe is more apt to regulate BigTech than the U.S. – and it is not mere jealousy. If Google, for example, is indeed a monopoly, Taplin, a former tour manager for Bob Dylan, asks, would a consent decree like the one that the government made Bell Labs enter into in 1956 work? He believes it would.

Easy Ride is Over

The Guardian, the British daily, said “Move Fast and Break Things is a timely and useful book because it provides an antidote to the self-serving narrative energetically cultivated by the digital monopolies. They have had an easy ride for too long and democracies will, sooner or later, have to rein them in.”

It would be very difficult for many people and businesses to live without Amazon, Google, YouTube and Facebook, but it is becoming virtually impossible for many who produce intellectual property to live with them.

My full review of Jonathan Taplin’s new book can be found here, on IP Watchdog.

For more information or to buy Move Fast and Break Things, go here.

For a free preview chapter (via Google), go here.

Image source: jontaplin.com

 

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EU copyright reform – A leap forward or step back?

September 21, 2016 by Bruce Berman 0 Comments

Reforms to copyright law proposed last week by the European Commission would put the burden on Internet companies like Google, Facebook and YouTube to prevent online piracy and compensate content providers, like music companies and news providers. 

In a shift in policy the proposals issued by the European Commission would require websites that host video and stream music to shoulder more responsibility for rooting out copyright infringements.

Under the current rules, reports the Financial Times, YouTube, Facebook and other video platforms remove material on a case-by-case basis only after being notified by rights-holders. If adopted, the proposals would require them to run proactive software checks to determine whether content they are hosting contained copyright material.

Preventing Piracy

The European Commission proposal is intended to prevent piracy, which has haunted the music industry and recording artists which has shed more than 60% of its value since 2000, and to prop up content providers like newspapers and magazines, which have seen declines in print circulation.

leaked-copyright-communicationThe reforms aim the foundation of a long-running fight between struggling traditional media companies — from record labels to newspapers — and the technology groups that increasingly dominate online media.

Critics say the EC is seeking to shift the responsibility for identifying copyrighted content by requiring Internet companies that host user uploaded video, such as YouTube and Facebook, to proactively check for copyrighted material, rather than waiting to receive a take down request from a rights holder.

Industry trade publication TechCrunch reports that “The draft directive also includes a proposal for a new right for news publishers covering digital use of their content for 20 years. Unsurprisingly, Google is not a fan of this.”

This extended right is similar to ancillary copyright laws already enacted by governments in Germany and Spain which target search engines displaying snippets of news stories.

Mandatory Fee

The law as enacted in Spain included a mandatory fee for displaying snippets, one line summaries from publishers, and led to Google to pull its Google News service in the country. While many Germany publishers waived their rights in favor of retaining the traffic Google sends their way.

Whether YouTube’s free site is directly competing with paid services such as Apple Inc.’s Apple Music and Spotify AB is a matter of debate, reports the Wall Street Journal. According to a YouTube spokeswoman, “users come to YouTube to watch all kinds of different videos. The average YouTube user spends an average of an hour a month consuming music, far less than music-only platforms.”

The European Commission’s proposals, which come after a three-year review aimed at updating copyright law for the digital age, could take years to ratify. The proposals have been—and are likely to remain—the subject of heavy lobbying from copyright holders like record labels and newspaper publishers on one hand, and technology firms on the other.

Give-Backs?

It will be interesting to to see if the EU will be successful in rolling back what Internet users have come to believe is free content that until now has not been seriously policed.

A draft of the proposed EU reforms can be found here.

Image source:1709blog.com; openforumeurope.org

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Panasonic, NEC & Sony are battling with IBM for patent sales leadership

December 1, 2015 by Bruce Berman 2 Comments

Despite dramatically lower patent valuations, some big companies, including under-performing foreign holders, have taken the number of U.S. sales to new highs.

While IBM still leads, over the past three and a half years, it has been joined by IP-conservative firms from Japan, notably Panasonic/Matsushita, NEC and Sony. All four of these companies have something in common: poor recent financial performance.

In the January IAM Magazine, the Intangible Investor looks at the latest trends in patent sales among the biggest sellers. Activity is up and emerging are new leaders, like Panasonic, which leads even IBM in U.S. sales for the first half of 2015.

Analysis conducted by Brody Berman Associates in conjunction with Envision IP, a law firm that specializes in patent research, reveals that “for the three-and-a-half year period from 2012 to early August 2015, the leading seller by far was IBM, with 5,356 patents. Buyers include Google, Facebook, Alibaba and Twitter. In 2014 alone, IBM sold 2,187 patents, the most in any year over the period by any of the 12 leading tech companies analyzed.

Leading Patent Sellers

“Surprisingly, the number two, three and four patent sellers in the 2012-2015 period were all Japanese companies,” writes this reporter. “Panasonic/Matsushita, NEC and Sony, with 4,203, 2,131 and 1,578 respectively. This is a dramatic shift for conservative Japanese electronics giants, which rarely litigate patents to generate revenue or enable others to.”

Subscribers can link to IAM’s January issue here.

Intellectual Venture’s 70,000 patent portfolio appears to contain no patents originally owned by Apple, Google or Qualcomm, as Envision’s findings indicate. Several patents owned by IV investors appear in its portfolio, including those of Nokia, Verizon, Microsoft and Sony. Only 268 of the 19,559 US patents owned by IV were identified as having a litigation history, representing less than 1.5% of the portfolio.

Top 4 Patent Sellers

Among the top companies IV purchased from are Kodak (1,057), American Express (643), AT&T (358) and Philips (313) and Ericsson (273).

A list of IV’s 35 top sources for acquisitions can be found here.

Image source: Envision IP, LLC

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More patent holders (and buyers) are valuing perception over reality

October 1, 2015 by Bruce Berman 2 Comments

Lack of certainty and the high cost of monetizing patents are motivating some businesses to acquire impressive looking patents, not necessarily valid or essential ones.  

A reputation for innovation or R&D prowess has become a far more valuable asset since the American Invents Act was passed a few years ago.

IBM, among others, has sold unproven patents for tens of millions of dollars to the likes of Alibaba, Twitter, Facebook and Google, attesting to the power of source brand when it comes to invention rights.

In all but a handful of instances, no one gives a hoot about what an IT patent is really worth in the marketplace or even whether it is valid. There Perception-Realityis nothing new about securing batches of patents for affect, especially if it is unlikely that they will be enforced and subject to the scrutiny of litigation.

With licensing revenue down and patent sale prices 30% or more lower, there is little motivation for an alleged infringer to take a licence or settle a dispute.  The search is on to identify alternative methods of profiting from IP. Drawing upon a portfolio or family’s implied value can have more meaning than its actual worth — which is becoming increasingly more difficult to establish.

As Good as Gold

In the current (November) IAM The Intangible Investor looks at “Perception is reality for some patent holders.”

A golden reputation for innovation is easier to establish than value for most individual rights. Thus, a patent portfolio or family in conjunction with a recognizable brand can constitute a formidable pairing. “Perceived patent value” holders, those with a
reputation for innovation, may be in a better position to profit today than business that actually hold valid and infringed patents. Proven patents need to survive the PTAB and perform in court, and require capital to monetize; a reputation for IP can be built over time and managed.

We may recall the Intel Inside® advertising campaign of a decade or more ago that touted the branded processor inside the PC. It not only encouraged product sales but provided the company with the ability to license at a premium the patents covering the component.

There was less a qualitative difference in the microprocessor (vs. say AMD’s) than an implied one based on Intel’s consciously cultivated, and largely deserved, reputation for innovation. 4If issued patents are even less reliable than in the past, then invention rights that appear to be good are the biggest winners. It is no coincidence that the most significant R&D spenders also happen to be among the world’s most valuable brands and significant patent holders. The top ones exceed or are just under $10 billion in annual R&D spend.

Reputation, whether it is deserved or not, makes buying decisions easier — a welcome relief to at least some cash-rich buyers in the market for coverage who cannot wait for patents to issue.

The full IAM piece, “Perception is reality for some patent holders,” can be found here.

Image source: askskipper.com; wparesearch.com

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Obama Drinks the Kool-Aid on Weaker Patents, “Trolls”

February 19, 2013 by Bruce Berman 1 Comment

The President’s confusion about innovation and what needs reform will likely undermine American competitiveness.

In a recent Fireside Hangout on Google+ President Obama said that the U.S. needs to go much further on patent reform, singling out patent trolls, “who don’t actually produce anything themselves” and are “just trying to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them.”

The President’s inability to recognize who in fact is gaming the patent system, and what is to blame for tech companies’ frustrations regarding patent enforcement, will have a material impact on the American people and the economy.

Below is an excerpt from the remarks he made on Google+ last week:

Question: High tech startups are an important engine of the American economy. When I go around and talk to other entrepreneurs, what I hear is that they’re afraid that if they become successful, they’re going to be targeted by patent trolls… What are you planning to do to limit the abuse of software patents?…

Obama: A couple of years ago we began a process of patent reform. We actually passed some legislation that made progress on some of these issues. But it hasn’t captured all the problems.

The folks that you’re talking about are a classic example. They don’t actually produce anything themselves. They’re just trying to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them. Sometimes these things are challenging. Because we also want to make sure that patents are long enough, and that people’s intellectual property is protected. We’ve got to balance that with making sure that they’re not so long that innovation is reduced.

But I do think that our efforts at patent reform only went about halfway to where we need to go. What we need to do is pull together additional stakeholders and see if we can build some additional consensus on smarter patent laws.

Myth-Baiting

One wonders how the myth-baiting question about trolls potentially “targeting entrepreneurs,” and Obama’s disturbingly uninformed response, got to be featured in Google+ post-State-of-the-Union Fireside Hangout? President Obama is depicted on the chat as social media-savvy, commiserating with diverse innovators, a forward-thinking and transparent chief executive.

TechCrunch, one of most virulently anti-patent publications, wasted no time in jumping on the President’s comments and making them sound even more misguided than they are: “He url[Obama] admitted that there was a problem, and that there were some companies who were clearly not doing anything other than trying to ‘extort’ money from others. Furthermore, while he pointed to the patent reform bill that passed in 2011, he also admitted that it really only went ‘halfway’ towards reforming the patent system as far as it needed to go.” (For some reason the 47 minute chat is marked “private” on YouTube. You can view it here via Mashable.)

What Invention Theft?

President Obama made no mention of the rampant invention theft by tech companies that takes place in the U.S. and abroad at a cost of billions of dollars to small and medium-sized businesses, to universities and to American jobs.

Non-practicing (patent-holding) entities (aka “trolls”), which include inventors, SMEs, are a convenient scapegoat for tech companies that lack the patents they need for freedom to sell products, or do not want to pay for access to rights to do so. The economics of invention theft are in their favor, given the poor likelihood of detection, the cost of litigation, and the uneven chances of plaintiff success.

Despite owning a lot of patents, many tech companies fear strong rights, especially in the software area, because patents are potentially disruptive to their business and future, and the possibility of a product-halting injunction is always in the air. (Financial services is another industry that would just as soon see the meaning of patent rights gutted.)

NPEs have been accused of filing more suits than operating businesses. This is true because there are there many more infringed inventions today; NPEs are more experienced generating returns on patents; and they often have access to capital to fund costly suits that others do not. In short, NPEs are better suited to monetize IP rights, and more patent holders are willing to sell to or partner with them — a partnership that strikes fear in the hearts of businesses from Silicon Valley to Seoul.

Not all Trolls are Alike

There are some NPEs who abuse the legal system by asserting questionable patents and angling for a quick settlement to make an expensive defense to go away. Such dubious IP holders are in it for the nuisance value. Most of the patent assertion that I and others are aware of involve good quality patents that are valid and significantly infringed, sometimes knowingly, some times not. The economics of litigation today are such that a quick settlement is rarely profitable given the risks and costs. If a patent holder does not have quality patents and is not eligible for significant potential damages, it almost never makes sense for a holder (or good contingent law firm) to spend its time and money.

Google+, is a social network akin to Facebook. Google has made no secret of its disdain for patents, especially software patents which have the potential to endanger its dominant position as the Internet search provider of choice. (It will be interesting to see if Google attempts to suppress the distribution of this post.)

Sadly, President Obama has emerged as a champion of the technology establishment in Silicon Valley and elsewhere, who stand to lose more from strong patents than gain. Perhaps his support represents pay-back for the support it provided for his re-election. Going up against well-funded political action committees (PACs) is no easy feat.

America’s future will suffer if patents are further weakened and legitimate patent enforcement made even more difficult than they have been over the past few years. (The SHEILD Act, for “Saving High-tech Innovators from Egregious Legal Dispute,” would have a non-practicing patent holder who fails to win a suit it brings, pay defense legal fees in an attempt to foster a double standard. NPEs exist in part because SMEs and others lack the time, experience and financial acumen to go against businesses with virtually unlimited litigation budgets.)

*     *     *

It’s short-sighted of the President to cede the future of American innovation and job creation to technology businesses that use their formidable resources to defend their turf rather than break new ground, or permit others to.

Illustration source: pcmagazine.com; topnewstoday.com

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Selling Prices of NPE-Owned Assets Lag Despite High Quality

January 7, 2013 by Bruce Berman 0 Comments

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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Some Businesses are Benefiting from a Late Start in Patents

July 16, 2012 by Bruce Berman 0 Comments

Google, Facebook & Others are Suddenly IP Players

Buying late and paying a premium for the patents that a company needs is no longer just a viable IP strategy, it is a surprisingly lucrative one.

This is the subject of my latest The Intangible Investor column appearing in the current IAM magazine. The recent moves of companies such as Google, Facebook and Microsoft that have been relative latecomers to patents, and are being forced to play catch-up, are an illustration that they have learned from their early miscalculations.

Once laggards, these businesses are benefiting from a late start, quickly amassing fully embodied patent families that they can rely on now, as opposed to gambling their fate on R&D and patents yet to issue.

“Balancing the right amount and type of research and patent filings with rights that are in-licensed or otherwise acquired is a strategy that more businesses are learning to employ.

“For those that are cash rich and creditworthy, it can make sense to buy patents after an industry starts to mature if it means securing the rights that they and others need. Overpaying rarely enters into the equation.”

For now, inefficiencies in the market are making prices for must-have patents affordable to those with sufficient cash or access to capital. Affirming patent value helps smaller players, too.

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For the full column, subscribers can visit The Intangible Investor. 

Image source: patentpracticeliability.com

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Value of Microsoft’s Facebook Stake Drops Below $1B

May 22, 2012 by Bruce Berman 0 Comments

MS Supports FB’s Success; Promotes It’s Own

Facebook has been shedding market value like a wet collie its winter coat.

With Facebook’s share price down to just $72.7B as of May 22 from $104B three days after its IPO, Microsoft does not appear to be too concerned. Its $1.2B stake has decreased just a few hundred million. (Who remembers that MS owns 1.6% of FB’s shares?)

The competitive auction for 850 AOL patents and patent applications won by Microsoft a few weeks ago now comprise the core of FB’s growing patent portfolio. And, both Facebook and Google have been buying significant numbers of patents from IBM.

With $70B in 2011 revenues Microsoft’s Facebook shares may be a veritable blip on its financial radar. Still, it raises interesting questions.

Facebook was reputedly steaming that it did not have a real opportunity outbid Microsoft in the AOL patent sale. Microsoft stated that it wanted to partner with Facebook to acquire the patents but that AOL was said no to team bidding, possibly because of potential anti-trust issues.

With MS’s help Facebook wound up with hundreds of patents that will equip it against Google and any potential competitors like Twitter and LinkedIn. This no doubt pleased Microsoft as well, who also goes head-to-head against Google in markets than include the search engine, email and mobility, and is no doubt concerned about Twitter.

In 2007, Microsoft beat out major players like Google to buy a 1.6% equity stake in Facebook for $240 million. At the time, Facebook was valued at $15 billion. Five years later, Facebook’s valuation has soared — giving Microsoft a stake worth more than $1 billion at the time of the IPO. But rest assured, it’s not investment income that Microsoft is after.

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Even Microsoft lacks sufficient capital to afford Facebook at its inflated pre-IPO price — but it doesn’t need to own the social networking leader to succeed. All it may really need is patience. 

A growing Facebook is a boon to Microsoft and a threat to Google. However, FB’s post-IPO share price has quickly fallen some 20% below its offering. Many tech high-flyers, even the few that prosper, often find their stock going through dramatic peaks and valleys. Facebook’s early falling stock price has caught many off guard.

It remains to be seen if this dip in Facebook’s uncharacteristically high offering price will permit MS to buy more shares now or in the future, and whether the purchases will be for investment or strategic purposes. (I believe that Goldman Sachs, lead banker on MS’s IPO, has a major stake in FB.) Microsoft probably has all the FB shares it needs for now. It likely only needs a few percent more for a board seat, Department of Justice scrutiny permitting. My guess is that at the right time and price MS may quietly accumulate more shares.

If Facebook continues to secure IP rights intelligently, as it has, it will continue to be attractive to MS as a partner, investment or surrogate. Remember it’s not necessarily the patents a company owns that count; it’s the ones it controls.

If good performance does not lift Facebook’s stock back to IPO levels, Microsoft won’t cry. It will be the likely winner.

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The New York Times Deal Book is running a series of interactive images that illustrate post IPO performance of major tech companies like Google, Microsoft and Apple.  It’s surprising how volatile their shares can be in the early years. Apple, BTW, was down 25% from its offering price three years following it. (If we had only known then what we know now.)

Illustration source: technobaboy.com; tmz.com  

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