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Pre-IPO Snap, with $25B valuation, paid $9M for 245 IBM patents

A soft market for patent licensing has not stopped the right patent portfolio from commanding a respectable price from the right buyer – at the right time.   

Snap, the corporate parent of Snapchat, reported recently in its S-1 pre-IPO filing that it had acquired a strategic patent portfolio from IBM, according to PatentVue, the data-focused IP blog.

In a well-researched post, PatentVue reports that approximately 245 of Snap’s 328 issued patents have been purchased from IBM.

“While the terms of its patent acquisition from IBM were not made ibmpublic,” says Maulin Shah, Managing Partner of Envision IP, “and with no mention of this patent transfer in the S-1, it appears that Snap may have paid roughly $9-10 million for the 245 patents and 207 pending US patent applications from IBM.

Excluding the patent applications, this means roughly $36-40k per patent.

Twitter acquired 945 patents from IBM in 2014 for a reported $36 million, in an effort to settle patent infringement claims brought against it by the technology giant. This comes out to approximately $38k per patent, again, excluding patent applications.

Similar Strategies

“Snap and Twitter’s patenting strategy at this point appear to be very similar,” concludes Shah, “with the vast majority of both portfolios predominately made up of acquired patents from IBM.”

The current IAM magazine features an article, “Big Blue’s new groove,” which examines IBM’s evolving patent strategy, and lists 34 patent and portfolio sales Big Blue has made between 2014 and 2016. Buyers include LinkedIn, Hulu, snap-ipo-riskRed Hat, Global Foundries and Lenovo. IAM subscribers can find the article here.

Snap, Snapchat’s parent, expects to raise approximately $3 billion from an initial public offering this spring. Despite a $25 billion valuation, Snap lost $514 million last year.

Facebook, Twitter, LinkedIn and others all sought patent portfolios before they went public, in part to justify their valuation, and perhaps because they had the cash to justify the instant leverage provided by a meaningful portfolio.

Today, patents’ more abstract M&A or financial transaction value can be more meaningful that its direct licensing or revenue-generating value.

The PatentVue post, can be found here. The blog’s original coverage of Snap’s mobile messaging patent acquisition, here.

Image source: computerweekly.com; techcrunch.com

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

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 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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