Tag Archives: Nortel

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

Liquidation Value of Alcatel IP Rights is said to be $3.9B to $5.9B

Bernstein Research and WSJ say that the company’s patent value is up to three times greater than its current market cap

A credible news source is reporting that the liquidation value of the patent portfolio and other IP rights of beleaguered telecommunication equipment company, Alcatel-Lucent (NYSE: ALU), is worth as much as $6B.

Alcatel-Lucent, which current is trading at $1.12 per share at the close on Friday, has about 28,000 patents, many the best of which according to IP CloseUp sources have already been licensed. Back in February it also tried to license patents through defensive patent aggregator RPX (NASDAQ: RPXC).

alcatel-lucentAccording to a chart that appeared in the Wall Street Journal on December 7 attributed to FactSet and Bernstein Research , the intellectual property liquidation value of Paris-based Alcatel-Lucent is 3B to 4.5B euros or, at $.131 USD per euro, about $3.9B to $5.9B USD. It is not clear if this figure includes equity associated with the Alcatel-Lucent brand or trade secrets.

Alcatel-Lucent still hold some patents based on research conducted at famed AT&T Bell Labs. Lucent was established in 1996 and sold to Alcatel in 2006.

According to patent valuation experts the estimated value of the ALU IP rights could be even further afield than the $2.4B-$2.6B estimate for bankrupt Kodak’s patents. (It was announced last week that the Kodak portfolio is about to be sold for $500M to a “consortium of bidders” as part of a refinancing deal by a group led by JP Morgan Chase and UBS.) The heavily encumbered and much shopped Kodak portfolio could not generate auction bids of much higher than $150M.

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Inflated values for patents of public companies in search of a higher stock price help no one.

Do analysts and the media really believe they can throw around valuation numbers without consequence or support? The sale of Nortel’s uniquely overpriced portfolio for $4.5B in 2011 to a group led by Apple, Microsoft, Ericsson, Sony and RIM was an anomoly. It has skewed expectations about the real world value of patents.

For analysts to suggest that patent may be worth several or more times than they can reasonably generate is arguably irresponsible and a disservice to shareholders and innovators alike.

It could hurt more than help these companies and their investors in the long run, as attempts are made to establish more accurate prices and efficient markets for intangible assets worldwide.

Illustration source: mobile-web.me

Disclosure: Neither Brody Berman Associates nor Bruce Berman owns shares of Alcatel-Lucent or holds a position, long or short.

“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

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

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

Shareholders are Biggest Loser in Nortel Patent Sale

Where Was Nortel Management Before Bankruptcy Filing?

Significant patent value was not something that Nortel senior management apparently believed it was sitting atop when it filed for bankruptcy reorganization under Canadian and U.S. laws.

Could management have sold, borrowed against or otherwise leveraged the value of its vast patent portfolio and prevented the bankruptcy that will leave shareholders with pennies on the dollar? Continue reading

Demand Builds for Nortel Patents

Who Will Make Best Use of the IP?

A lot of people are interested in what bankrupt Nortel will do with its valuable patent portfolio. In fact, the company is in the process of soliciting bids from parties.

According to a recent article by Dow Jones reporter Stuart Weinberg, Nortel Solicits Bids for Patents, Deciding Whether to Sell, the price for the more than 4,000 patent portfolio could go as high at $1 billion.

The portfolio is said to include LTE or long-term evolution cellular rights which are key to industry standards.

Three questions: (1) Did Nortel seriously consider monetizing these valuable assets before it was forced file for bankruptcy?  (2) Must it liquidate them? (3) To whom will the portfolio be worth most?

A strategic user like (BlackBerry maker) Research in Motion, which is said to be interested, could make good use of many of the patents. So, too, can a more aggressive licensor like an NPE.  But no NPE to date has come up with that kind of capital. Intellectual Ventures and possibly Coller ipCapital could.

Alternatively, it  may make most sense to the current owners to retain the patents for licensing in the ongoing company. This may not be to the liking of hungry creditors, eager to cash out what they can.

The Nortel conundrum is an illustration of how far perspectives of proven IP have come.  Financial/IP advisors are Lazard and the Global IP Law Group. Both have their work cut out for them. I hope the are up for the challenge.

Photo: Financial Post

Patent Portfolio Sale

Nortel Wireless Sale: Unprecedented

Interesting story today in TelecomTV by Peggy Albright about bankrupt Nortel’s disposition of IP assets.

“Even the process Nortel is going through to determine the disposition of its IP assets is unusual. Normally a company’s executive leadership has the ultimate authority over what to do with its IP. And normally a company would conduct its licensing negotiations with the utmost secrecy.

But in this case, Nortel does not have autonomy to make unilateral decisions and the process is being played out in the public domain through the courts. “Right now, Nortel’s advisers are going through their patents one by one to determine the portfolio’s value. That process should be completed this spring.”

It’s unprecedented for a wireless patent portfolio of this size (several thousand patents) and reputed quality to come to market. It will be interesting to see how much cash it generates for creditors.

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