Tag Archives: Motorola

“Patent Transactions in Transition” will be Addressed in Toronto

Evolution of IP Deals from Simple Licenses to Complex Portfolio Sales and M&A will be a Focus at LES Conference

The rapid evolution of patent transactions will be the focus of a presentation and discussion at the LES North America meeting in Toronto, Canada.

Patents have fared best among IP as financial assets, and today can be leveraged in different ways. Invention rights played a critical role in Google’s acquisition of Motorola ($12.5 billion, 17,000 patents, 6,000 applications) and in Nortel’s bankruptcy sale to the Rockstar Consortium for $4.5 billion. Buyers included Apple, Microsoft, Ericsson, RIM, Sony and EMC.

Patents have certainly played a part in the smart phone wars, with some of the largest damages awards granted in this area. (See Apple v. Samsung.)

The evolving role of patent transactions, or “Patent Transactions in Transition,” will be the focus of a workshop moderated by IP CloseUp’s Bruce Berman (of Brody Berman Associates)  at the Licensing Executives Society annual meeting on Tuesday, October 16 at 2:00. It’s session 3E. The LES meeting this year is being held at the Sheraton Centre Hotel, 123 Queen Street West.

Panelists will include Myron Kassaraba, partner, Pluritas, LLC, one of the leading patent transaction firms; Dan Henry, Senior Vice President, Business Development, WiLAN (NYSE:WILN), a publicly held IP licensing business; and Sanjiv Samant, Managing Director, Technology, for Canaccord Genuity (TSX:CF, LSE:CF), a global full-service investment bank.

This year’s LES attendees are invited to attend what should prove to be a timely session. Lively panel and audience q&a is expected.

Image source: tynax.com

Patents – The Rights We Love to Hate

A Misunderstood Symbol of Control, Patents are the Rodney Dangerfield of Assets: “They Can’t Get No Respect” –

Recent record prices for patent sales and shares of selected technology businesses (e.g. Nortel, Motorola, InterDigital) have turned up the volume on angry anti-patent rhetoric.

Patent owners of all shapes and sizes, including some operating companies, continue to be described in a variety of unfavorable terms, some of them unprintable.

On balance patents do much more good than harm, and the U.S. patent system, far from perfect, works well. It is responsible in part for spawning the most innovative companies in the world.

Many software developers, academic economists, CEOs and others, clinging to half-truths nurtured by myths and self-interest, believe that patents are anti-competitive, impede progress, tax consumers and line the pockets of lawyers.

“A Bull Market in Tech Patents, an article by Steve Lohr, veteran New York Times technology reporter, served to perpetuate the anti-IP myth. In it Lohr suggests that the patent gold rush has a darker side. “It is diverting money from innovation from industries crucial to the economic future of the United States.”

This is utter nonsense. Conclusions drawn in the article are likely based in part on what companies Lohr covers and analysts like Harvard professor Josh Lerner are telling him. Lerner is co-author of Innovation and Its Discontents, a strangely myopic book which I reviewed (skeptically) for Nature Biotechnology. It suggests that patents have become too strong and are destroying businesses, innovation and endangering lives.

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What is it with patents that raises the ire of otherwise intelligent people?

One reason is that patents are highly abstract, “exclusive” rights that on occasion can stop speeding products cold. 

Patents are complex to understand, difficult to validate, dangerous to monetize, frustrating to value, and expensive to acquire and enforce. 

Their performance is almost impossible to measure. Infringing a patent often is easier and much cheaper than licensing it or conducting costly R&D to design around. And then the infringer has to get caught and prosecuted. For some businesses patent infringement settlements are like a speeding ticket. They pay it if they have to and go on their merry way. They may still be ahead billions of dollars had they done the the right  thing.

I am not a particular fan of Intellectual Ventures, a NPE which has acquired more than 35,000 patents. A recent NPR broadcast, “When Patents Attack,” is dramatic radio entertainment but shoddy journalism. It was aimed at exposing the evil patent system as embodied by I.V. I am a big fan of This American Life, so their feeble expose hit home. What were they thinking?

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Often when a company believes it has the patents it needs to do business it does not. This can be painfully frustrating, and costly. It is the nature of business innovation, predating Alexander Graham Bell and Edison. Smart companies do their best prevent infringement by searching prior art and planning for the inevitable disputes. They also build a patent portfolio that can provide some leverage against operating companies. Frustration of this kind does not mean that invention rights are evil or counter to most Americans’ economic interests. The Founding Fathers thought IP rights served an important purpose, writing them into the U.S. Constitution before the right to raise and support a standing army and the right to declare war.

The fact that some companies are finally respecting patents is not only good for shareholder value, it can provide a boost to innovation. Now that the patent playing field is actually starting to level, some businesses are having trouble adapting A number of companies with abundant numbers of patents would still like to see them weakened, in general, and threats to their franchise diminished.

The pricing of the Nortel and Motorola patent portfolios got out of hand because some companies thought they could provide next generation mobile or 4G products and services without the necessary IP rights. They were wrong. Brand power is mighty, but it still is no match for the right patents. When businesses need to catch up quickly, the market extracts a pricing premium. Research in Motion paid for its IP mistakes in 2006 when it wrote a check for $612.5 million to settle an infringement suit. (Reportedly it could have settled for some $40m several years earlier.) Microsoft paid dearly in the 1990s for its mistakes, but had the luxury of time to catch up.

Google did not. Facebook, LinkedIn and Groupon with a dozen or fewer patents each, will not be far behind.

Costly as it may appear, IT companies are learning that it is often more efficient to pay a premium for proven rights that they must have than spend billions, plus years of time, on hundreds of speculative inventions and their questionable rights that may some day have value. The pharmaceutical industry is well acquainted with the need to conduct M&A along with its R&D.

Maybe there is a lesson here: A buyer really doesn’t know if it has overpaid until all of the accounting is in. For some cash-rich and credit-worthy companies, buying patents at a premium that will shape a market, slow competition or deflect litigation or a possible injunction is less lazy a decision than a prudent investment.

Those who encourage disdain for innovation rights because of some businesses’ lack planning or scruples (or both), or because independent patent holders today are better equipped to confront infringers, are doing innovation and commerce both a disservice.

Image source: businesstm.com, engadget.com

Rumored Investor Stake Fuels RIM IP Asset Speculation

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.

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.

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

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