Icahn Interest May Enhance Patent Value or Inflate It –

Patent portfolios are making some investors smarter, others richer and companies confused.

They also are making the job of technology stock analysts more difficult.

Blackberry maker Research in Motion (RIMM) shares were up 6% last week on speculation that activist investor Carl Icahn is interested in the company. Icahn’s interest in RIMM, let alone an actually stake in it, may pave the way for a sale of some or all of company’s assets, especially its patents. At a minimum it has had a positive affect on its share price and IP value.

Icahn recently encouraged Motorola Mobility (MMI) in public filings and statements to seek more value from its patent portfolio resulting in a sale recently to patent-hungry Google (GOOG) for $12.5b. Mobility has 17,000 patents, many in the lucrative 4G LTE space.

Earlier in September activist shareholder, Jaguar Financial Corp publicly urged RIM to consider a sale of the company or a sale of its patents in order to maximize shareholder value. RIM shares are down 30% since the beginning of September.

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Not surprisingly, it is easier to price and sell an IP-centric company like RIM than to value and sell all or some of its patents. It really depends on who is interested and how do they plan to use the patents. It also depends of timing. Without the patents for leverage, RIM’s future may be even more limited than it is currently.

Of late, a broad range of smart investors like Icahn and Jaguar, as well as Nortel buyers Apple, Microsoft, Ericsson, et al. and Motorola Mobility acquirer Google can have a significant impact on significant IP holders’ shares. We are still at the early stages of understanding how patents can influence a business’ performance and market value. But the perception that a company may have valuable IP rights – or is not using them properly – is a powerful tool.

Last week Jeffries & Company equity analyst Peter Misek provided an unusually thoughtful look at the actual value of patents in RIM’s portfolio. Misek wisely retained experts to look at what is actually in the portfolio, what the rights cover and who owns them, not just the quantity.

“In valuing the essential LTE patent portfolios of major players in the wireless space, we utilized outside industry experts that included physics PhDs, wireless engineers, patent legal specialists, and former patent office employees.

“Our work began by first screening tens of thousands of patents and then determined a level of essentiality based on individually examining over 1,400 patents related to LTE.”

Misek concluded that RIM has a lot more patents covering security than highly lucrative 4G LTE inventions.

Jefferies & Company believes that the patents are worth about (only) $1b if RIM continued to practice them, but would be valued at as much as $2.5b if the company is sold outright now where they can be used by others.

What I believe Misek is saying is that because of RIM’s weakening market share it is good but far from ideal patents are worth significantly more to others than itself.

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Exhibit 2: Essential LTE Patents: Detail

Patent Holder % Ownership of Essential LTE Patents,
Estimated Value ($M)

LG                           23%         7,907
Qualcomm               21%         7,329
InterDigital               9%           3,279
Motorola                  9%           3,279
Nokia                       9%           3,086
Samsung                 9%           3,086
ZTE                          6%           2,121
Nortel                       4%           1,350
ETRI                        2%              771
TI                             2%              771
Ericsson                  2%              579
NSN                         2%              579
RIM                          1%              386
Freescale                1%              193
Huawei                     1%              193
NEC                         1%              193

Source: Jefferies & Co.
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The Nortel auction set the stage for IP value recognition as well as patent price inflation.

Prices for “must have” patents clearly are in a class by themselves. Perceived need and costs of R&D and patent litigation figure into the calculus; so does a business’ ability and appetite to fend off enforcers. “Nice to have” and “need to have” have very different connotations both in the IP world and on Wall Street.

Some on Wall Street, like Peter Misek, are finally making an informed attempt to put patent value into shareholder perspective. Let’s give them credit for trying.

 Illustration source: tacticalip.com