Tag Archives: patent valuation
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High Court’s ruling on damages may re-invigorate patent licensing

The Supreme Court of the United States is in the position to make patent licensing meaningful again. 

At least that is what some experts believe. SCOTUS has agreed to hear a case relating to willful patent infringement that could be a game changer for some businesses attempting to license. Over the past several years the environment for patent licensing has become increasingly contentious as the system adjusts to lack of judicial consistency and new laws intended to root out dubious patents.

Opinion is less divided on the likely outcome of the decision than its ultimate impact.

“While predicting the outcome of a Supreme Court decision is always speculative, this case should be one of the easiest outcomes to predict ever,” says Gene Quinn on IP Watchdog.

“Unless the Supreme Court fundamentally alters its statutory interpretation from the Octane Fitness case, supreme_court_buildingarbitrarily creating a distinction without a difference, the Supreme Court will grant district courts the same broad discretion on enhanced damages that they have been given with respect to awarding attorneys fees.”

Those familiar with enhanced-damages awards are aware that the Federal Circuit has created complex, somewhat arbitrary tests for determining when they can be granted.

A damages expert for a leading consulting firm told IP CloseUp that a decision to lower the bar for willfulness, or, at least, clarify it, could be a game changer not only for operating companies whose sales can be materially harmed by patent infringement, but NPEs, who will likely benefit from the more risk-adverse posture that many businesses will assume.

“Willfulness has been too hard to prove for a long time,” the expert said. “For it to have any real meaning, the criteria and application need to be less arbitrary, and the Supreme Court appears to be willing to provide more definition. That will give some licensors more negotiating leverage and many patents and portfolios greater value.”

An non-practicing entity told IP CloseUp, that he did not think that a Supreme Court ruling making willfulness easier to establish will have any effect much less a significant impact. “It’s so damn hard to prove willfulness, and even if you can get jury award, judges don’t usually along with them.”

Halo’s lawyers argue (PDF) that just as the Supreme Court created a more flexible test for awarding attorneys’ fees when it decided the Octane Fitness case last year, reports Ars Technica, the test for when willfulness awards should be granted should be loosened up as well.

The high court will hear cases from Halo Electronics Inc and Stryker Corp, consolidating them to consider the companies’ arguments that the willfulness standard as set out by the U.S. Court of Appeals for the Federal Circuit is too rigid and should be relaxed. The case is scheduled for oral arguments in early 2016.

Image source: biospectrumasia.com; adweek.com

 

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Unwired Planet: Can Cash Position Cushion Long Sales Cycle?

With three recent Markman hearings and more than $100M in cash UPIP trading currently at $1.46 could be a good buy for those with patience and a strong stomach.

At an earnings call last Thursday Unwired Planet, Inc. (NASDAQ: UPIP)  CEO Philip Vachon reiterated his confidence in the future, and announced a renegotiated deal with Ericsson that will provide the company more flexibility going forward regarding patent transactions.

“With the modification of the Ericsson agreement during the [past] quarter, the company now has the option to acquire assets that are not subject to the Ericsson revenue share agreement,” Vachon told investors,”but that are subject to the $1.7 million of our NOL.”

Lake Street Capital senior equity analyst Mark Argento who has a “Buy” recommendation on UPIP, suggests that investors proceed with caution, but sees a $5.00 price target.logo

Sum of Parts Valuation – “Given the nature of its business model and the lack of revenue and operating profit predictability from a modeling perspective,” says Argento,” “we believe valuing UPIP on a project/IP portfolio sum of parts valuation basis is most appropriate. We take various scenarios: Low, Mid, and High range of outcomes for monetizing both its core UPIP portfolio and the wireless infrastructure portfolio acquired from Ericsson.”

Argento’s list of “Valuation” challenges and “Risks” in his report (linked above) provide useful guidance for anyone interested in public IP licensing sector.

Spend and Wait

Unwired Planet is typical of the frustrations faced by many PIPCOs that own good patents but have to spend time and money, and encounter risk, to monetize them.

Spending on legal fees and acquisition costs, without generating significant income, requires a strong constitution, even when there is cash on the balance sheet and burn rate that can be contained. Not every PIPCO is so lucky.

Image source: unwiredplanet.com; lakestreetcapital.com

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Patent Pricing: One Part Market Value; Two Parts Perceived Need

Google’s recent sale of Motorola Mobility’s handset business to China’s Lenovo is an illustration of

how what appeared to have been an over zealous acquisition in 2012 is starting to make more sense. It is a reminder that the eventual cost of the purchase and return to Google is not necessarily visible on the balance sheet or its P&L. Extracting value from patents can be measured in many ways.

Lenovo is now the world’s largest PC maker and fourth largest mobile phone company. In the deal Google gets to keep most of the patents, provide licences to Lenovo (thus establishing their market value), empowers yet another Android handset maker in its battle with rivals Apple and Microsoft, and receives a bunch of cash and stock to mitigate the original cost of the Motorola Mobility purchase. It also gets to retain what could be an undervalued crown jewel – Motorola’s Advanced Research and Projects.

“Beauty is in the eye of the holder,” in the April IAM magazine, I consider the difficulty determining value when buying or selling patents, or their holders. It also kodak_valuations1touches upon overly zealous valuations, such as those of JP

 

Morgan in ParkerVision’s (PRKR) win over Qualcomm, and in Kodak’s eventual sale to a consortium led by Apple, Facebook, Google and Samsung for just $525 million. (Projections by some interested parties were as high as $4.5 billion.).

“Just because some patent holders see their assets in a brighter light,” the Intangible Investor piece observes, “does not mean that stakeholders must be blinded by the glare.”

Buyers and investors alike should be aware of not only who is valuing a particular IP portfolio for sale or estimating return on a dispute, but also what is their relationship to the selling party.

Image source: envisionip.com

 

Patent Valuations: Why do they Differ from Selling Price?

Owners and buyers are frequently out of sync w/ investors

Valuations that are either too high or low underscore the need to provide more bracketed price scenarios when it comes to selling a patent portfolio.

The frequent disconnect between seller, appraiser and buyer suggests a more flexible approach might be needed that anticipates a variety of conditions, contexts, types of buyers, and possible deployments.

Under the best of circumstances, providing an accurate patent valuation is difficult. Valuations typically are conducted for litigation purposes, licensing, taxes and M&A.  A cash flow model applied to patents that are already licensed may not help much. Encumbrances or prior licensing agreements can make these patents less valuable to a new owner. So can an inability to enforce agreements. (Kodak says its patents have generated more than $3B in licensing revenues since 2001.)

Buying and selling whole portfolios is a relatively new phenomenon. Patents are a veritable moving target, with the price of portfolio and individual rights in constant flux. A buyer’s perceived level of need plays a significant role in driving price, not abstract reasoning from accountants or Ph.D.’s. How one or more specific buyers plan to use a particular group of assets will help determine the price it eventually sells for, as well as perceived need, cash position, strength of their current patent coverage, etc.

Reasons for Buying

Large operating companies often buy for strategic (defensive) reasons, i.e. for leverage to counter-balance a potential enforcement against them. A few have started to think about also acquiring patents for their revenue-generating potential. The Rockstar Consortium may have been formed for defensive leverage in mind, but it is clearly in the licensing business. Based on what Apple contributed to the Nortel purchase price, $2.6B, it appears to own 58% of Rockstar. It likely would like more than a strategic ROI.  

Sometimes keeping patents out of the hands of a competitor or competitors is sufficient value to pay a premium to market, especially if the buyer already has a lot of cash and is conducting less R&D that it might. This may have been the motivation behind Google’s $12.5B acquisition of Motorola Mobility and its some 17,000 patents and 6,000 patent applications.

Was Google certain about what it wanted to do with the MMI and its portfolio before purchase? Who knows? Given Google’s cash position and probably need it was not likely to overpay at any price. Foremost, the purchase kept the assets out of the hands of companies who could possibly harm them. (Apple, Microsoft, etc.) After losing out on the Nortel patents the company’s strategy likely changed, as did its willingness to pay a premium to acquire the next “essential” portfolio. There is no disputing that with the MMI purchase Google went overnight from patent have-not to a serious player. (My mother used to say, “rich or poor, it’s nice to have money.”)

Valuations can under-estimate as well as over-estimate price. Here are some recent patent valuations and sale prices or offers:

Kodak, $2.21B – $2.57B –  CNET auction bids to date, $150M-$250M
(Valuation by 284 Partners)

AOL, $290M + $1.1B – Sale to MSFT for $1.1 B (and in turn to Facebook $550M)
(Valuation by M-CAM and MDB Capital)

Nortel, (Stalking Horse minimum bid by Google, $900M) – Sale price $4.5B to Rockstar Consortium
(Apple, ($2.6 B), Microsoft, Ericsson ($340M), Sony, RIM ($770M), EMC)

Motorola Mobility $7.9B market value
(Google paid $12.5B, a 63% premium per share over its stock price, largely for its 17K patents and 6K applications )

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More the Exception Than the Rule

While patent valuation is far from merely throwing darts, it is very difficult to come up with a number for what a buyer will pay for a group of rights at a given time. One could say hitting the sales price target, today, is more the exception than the rule.

If Wall Street and retail investors are to take patent portfolios and transactions seriously, more standardization of terms and methodology will help. There at least needs to be a common vocabulary in discussing patent attributes and possible impediments. Best-case scenarios are not typical. (Perhaps patent valuations should come with a glossary of terms and conditions?) At a minimum, the source of the valuation (paid private firm, investment banking firm, independent appraiser) should be made clear.

In real estate, where there is almost always well-defined body of comparables, mis-targeting the final selling price by much more than 10% is rarely acceptable. For now, missing the final selling price of a patent portfolio by 100% or more is. This does not a market make. Worst of all, it confuses those investors who attempt to make rational stock decisions based on the opinion of valuation professionals. What inventors fail to remember is that intangible assets are much less predictable, and so are their buyers.

Nice-to-Have vs. Need-to-Have

Valuing for litigation damages has always been more art than science. Still, each side has its expert and the court may have one, too. Triangulation often is the result, and it can work in a damages scenario where compromise is acceptable to both parties. Competitive bidding is wonderful for some sellers, but it is only occasionally a realistic option.

Nice-to-have patents are one price; need-to-have another; litigation quality still another. Some but not all of this is in the eye of the beholder.

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Lest we forget, patent valuations for the purpose of a sale may have more to do with goosing the stock price  and enhancing the anticipated offer than establishing a true selling price. For now, surprises in on the high or low end are likely remain the norm. The most useful patent valuations will anticipate the unexpected.

Image source: axialmarket.com; gaebler.com


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