3000 Yahoo Patents for Sale

The Denver Post has published an interesting article titled, "Yahoo Lines Up Bids for About 3,000 Patents."  The article discusses recent efforts by Yahoo to publicize the sale of almost 3,000 patents and pending applications by auction assisted by Black Stone IP.  Notably, some of the patents "date back to 1996" the company's founding--which begs the question about remaining term length--and cover the core search business of Yahoo.  This patent sale is separate from the core business sale and represents a significant difference in value, according to the article.  The estimates of the value of the core business was placed at around $4 to $8 billion apparently with (most of) the patents.  Verizon supposedly bid $3 billion, but this did not include the patents for sale.  So, does that mean the patents are valued between $1 and $5 billion?  In valuing around 2,000 of the patents, Maulin Shah of Envision IP arrived at a figure between $965 million and $1.34 billion.  The article states that this is based, in part, on past historical licensing revenue.  In addition, the article notes that Yahoo has collected "$600 million in patent sales and licensing fees in the last three years."

Given the state of U.S. patent law, the valuation of the patents and ultimate sale price will be interesting.  Joff Wild of IAM (Intellectual Asset Management) recently authored a blog post for the IPKat which essentially reviews the current state of patent valuation.  Notably, there could be some patent bargains right now.  Given Enfish and TLI Communications, the U.S. patents will need a very careful analysis.  However, if the patents are purchased for defensive purposes only, then maybe the analysis will not be so careful.  Google is rumored as a potential buyer--competition issues? 

Patent Valuation, T.S. Eliot and the Theatre of the Absurd

It is one of the most famous stanzas of modern English language poetry. Thus T.S. Eliot
concluded his poem-- "The Hollow Men":

This is the way the world ends
This is the way the world ends
This is the way the world ends
Not with a bang but a whimper.

And so it seems to being going with the Eastman Kodak patent portfolio and, more generally, pace the recent jury award to Apple in its lawsuit against Samsung, the patent valuation bubble that we have been witnessing. We have several times over during the past year questioned (here, here and here) the basis for the oversized valuations that have been ascribed to various patent portfolios, including Motorola Mobility and AOL. But at least these valuations were connected with real transactions, where a willing buyer and a willing seller agreed on price.

But what about the most curious of these jumbo valuations, namely the amount ascribed to the portfolio of Kodak Eastman patents--up to $2.6 billion dollars-- as the company is in throes of Chapter 11 bankruptcy proceedings in the U.S. and is itself was being valued at only at a fraction of the proposed valuation of its patent portfolio? It just did not seem to make sense to this commentator.

Well, it seems that, when all is said and done, T.S. Eliot's observation may prove to have been a more accurate assessment of the Kodak portfolio than that of all the investment bankers, IP asset valuators and the like. An article by Mike Spector and Dana Mattioli, which appeared in the September 14, 2012 edition of wsj.com here (a hardcopy version appeared in the September 15th U.S. edition of the newspaper), says it all—"Kodak Patent Auction Fails." Announcing with great fanfare that the portfolio would be put to auction in order to fetch an amount equal to the portfolio valuation estimates, the reality has told a different tale.

As observed in the article, the bids came in, but each for a different "shape, size and combination" of the portfolio. More importantly, while participants in the bidding appear to have include companies such as Apple and Google and patent aggregators Intellectual Ventures here and RPX Corporation here, the amounts actually offered look at first blush to be a rounding error, ranging from $150 million to $250 million. As a result, the company has revisited the feasibility of the auction process. Instead of providing the bankruptcy court with "serial" extensions for the conclusion of the patent auction, Kodak has notified the court that is simply "adjourning the sale hearing until further notice." This means that if the company reaches a deal, it will notify the court. However, the auction is no longer part of the case docket. The article ascribes the troubles besetting the auction to the concern felt by the bidders "that Kodak already squeezed much of the value from the portfolio with repeated litigation and licensing." If so, and if that is the underlying reason for the disappointing bids, then the question is: Weren't the data points not clear at the time when the $2 billion plus valuations were being made? If the answer is "yes", then how we account for the chasmic difference in valuations? If the answer is "no", what does this tell us about the valuation process?

Let me be clear: I am aware that patent valuation (and IP valuation more generally) is a difficult and often inexact exercise. If the IP under scrutiny does not have a current income stream or some other ready metric to determine valuation, there are few if any other clear market indicators to assist in the evaluation process. As such, any such effort is at best merely an estimate, even a rough estimate, no matter how skilled the person making the valuation.

That said, the discrepancy in connection with the Kodak portfolio raises questions beyond those that are connected with any patent valuation. It strains credulity to believe that anyone can conduct a reliable valuation of a portfolio of 1000 or more patents within the time frame in which most valuations are meant to be carried out. If that is true, then what exactly were the parameters being considered in doing the valuation under the circumstances? Perhaps more importantly, what was the input of the investment bankers in determining the valuation of the Kodak (and other patent portfolios)? Are the interests of the bankers aligned with the valuation specialists; are either or both fully aligned with the company? If not, why not? And where was the mainstream media in doing more critical reporting of the issue?

I have been arguing for some time that the recent spate of oversized patent portfolios provides great theatre, but little more, for those who want to show "how valuable patents can be." I agree that patents can be valuable, even very valuable, but in most industries, that value is seen far from the spotlight of the media. Maybe it is time for the curtain to be dropped on this theatre of the absurd.

ICAP Ocean Tomo Auction Sees Record Bidding

It's good to see that Patent Auctions are apparently back up running again. ICAP OceanTomo issued a press release yesterday to highlight the USD 11.43 Million received in their 11th auction.

The press release highlights two sets of lots. An exclusive licence to a group of patents owned by the University of Southern California on a multimedia architecture went for USD 7.7 Million in a pre-auction sale.

A set of patents owned by Walker Digital LLC for which Ocean Tomo is the exclusive sales agent, according to this report. The bidding for this group started at USD 50 Million according to the press release, and stopped at USD 350 Million without reaching the reserve price. No doubt post-auction bidding will be continuing by some parties to access the portfolio. Indeed ICAP OceanTomo Managing Director Dean Becker clearly states that he plans to finish work on this lot within weeks.

Patent auctions have been criticised for allowing patents to fall into the hands of "trolls" who then exploit them. They do provide a means, however, for researchers and universities to monetarise their assets and allow the generation of cash which can be ploughed back into research and development, as the deal with the University of Southern California clearly shows.

Technorati Tags:
Patent Auction, ICAP Ocean Tomo, Walker Digital

Photo Credits: Dean Becker from www.oceantomo.com and Jay Walker from Inventors Digest (www.inventorsdigest.com)

OceanTomo

I have not yet seen Ocean Tomo's comments on its recent auction held last week, but the IAM Magazine already includes a post which reports that the record number of lots on sale went for USD 12.8 Million. IAM comments that it is interesting to see that the desire to purchase patents has not (yet) dried up. OceanTomo have not yet issued a report - at least their website is not showing anything.

The purchasers of the patents probably still have funds available for spending - at least that seems to be the case for a number of funds in the VC industy. It is not suprising that money was spent at this auction. More interesting will be the developments over the next few months and year. I would not be suprised to see more patents come onto the market as companies "rightsize" their portfolio - but that the funds for purchase becoming more limited.