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? 

Is IP the Answer for Kodak’s Comeback?

In a March 20, 2015 New York Times article titled, “At Kodak, Clinging to a Future Beyond Film,” Quentin Hardy authors a fascinating account of Kodak’s past and attempt to rebound from bankruptcy through leveraging its research and intellectual property.  This blog previously has discussed the deal involving the sale of a large amount of Kodak patents, here.  Interestingly, the article notes that:

Spend much time around Kodak, and the company’s faded glory is apparent. Mr. Clarke[, the new CEO,] emphasizes the power that history still gives the Kodak brand. But the odds are stacked against his salvage job.

“The question isn’t tech-related, it’s competition,” said Amer Tiwana, an analyst at CRT Capital Group. “Kodak’s intellectual property seems to be slightly better, but the hazard is that their competitors, eight or 10 strong ones in each market, kill them on pricing. They might never get to profitability on the new stuff.”

In 2013, Kodak sold 1,100 patents related to digital image capture to a group of 12 companies, including Apple, Samsung and Facebook, for $527 million. Kodak retained the same access to the patents as the bidders, should it wish to compete in, say, photography once again. And it kept about 7,000 other patents, largely connected to the chemistry and physics of creating images, which the market sees as having relatively little value.

I wonder about the brand and the nimbleness of Kodak.  As we know, Kodak was slow to change its business model to adapt to digital photography.  Has it emerged as a company able to react to the market quickly?  That is not so clear from the article.

From Barbarians to Beggers at the Gate: Revisiting the Kodak Patent Sale Debacle

I have on various occasions discussed the saga of the Kodak patent portfolio and how a valuation of $4.5 billion for only part of the portfolio ended up in a sale and licensing of just above $500 million. Explanations have been sought to explain this colossal drop from the multibillion dollar estimate in late 2011 to a payout of only a fraction thereof within less than a year. An interesting attempt to provide answers has been offered by Mark Harris, a journalism fellow at MIT. Entitled “The Lowballing of Kodak’s Patent Portfolio”, here, and brought to my attention by the ever-helpful Patents Analytics group on LinkedIn, the piece is well worth a full read. Permit me to provide the highpoints of the article.

Even as Kodak sank deeper and deeper in its competition with Fuji and others, it continued to engage in innovation, spending nearly $500 million yearly. In so doing, it came up with inventions such as the megapixel camera. By 2012, Kodak had assembled a portfolio of 22,000 patents in 160 countries and earned more than $3 billion in licence fees between 2003 and 2011. As bankruptcy loomed, the company saw the sale of some of its patents as the way back to reinventing the company as a commercial packaging and printing enterprise.

The anticipation that its patent portfolio would fetch a reasonable sum seemed reasonable in light of the sale of the Nortel portfolio for $4.5 billion and Google’s expenditure of over $12 billion for acquisition of the Motorola Mobility business and patents. Consultants chimed in with estimates ranging from between $1.8 billion and $4.5 billion for the Kodak portfolio, against the backdrop of what should appear obvious—“patents are unique and idiosyncratic assets.” In particular, in July 2011 Kodak hired 284 Partners, here, who had been the consultants in the Nortel transaction, to advise Kodak. Focusing on 1,730 patents, the company employed a discounted cash-flow analysis, here, to estimate their value via licensing and litigation, if required. Based on this analysis, it came up with a cash flow of $3.07 billion from 2010 to 2020, with a net present value of between $2.2 billion to $2.6 billion.

Kodak relied on that estimate and proceeded to seek purchasers for the patents via an auction against the back drop of ongoing multiple litigation. Unfortunately, two weeks before the auction was set to commence, the US International Trade Commission ruled invalidated a key patent that led to a reduction in the estimated value of its portfolio to around $1.4 billion. This downward trajectory became much more pronounced when only two bids were made, the higher of which was only $250 million dollars. This amount was less than the company needed to secure loans that it had arranged for the company.

Harris goes on to explain thus:

"The potential bidders, it turned out, had organized into two camps. In one, Adobe, Apple, Facebook, and Microsoft formed a consortium led by Intellectual Ventures. In the other, RPX mustered Amazon, Google, HTC, Samsung, and the photo-printing website Shutterfly. Each participant in such a consortium gets to keep a share of the patents and a license for the rest. The cost to each is relatively low, and all gain the protective power of the entire portfolio".

At the point, as the court allowed the auction to continue, Intellectual Ventures, here, and RPX, here, perhaps the two most prominent patent aggregators (although each with a quite different business model), put together what Harris called “a superconsortium”. The two existing consortia merged and added three additional members-- Fujifilm, Huawei and RIM, with a combined market capitalization at the time of $1.5 billion (more or less the GDP of Australia). It was November 2012 and the parties reached their High Noon, here, moment. Kodak needed more money than what was being offered to secure financing of $793 million, namely such financing being contingent on Kodak raising at least $500 million from its patent portfolio. The result—the superconsortium offered $527 million in exchange for payment of $94 million for the patents under negotiation plus $433 million in licensing fees for tens of thousands of Kodak patents that had not previously been on the negotiating table (plus the mutual dropping of legal cases against each other). To put the $94 million amount in perspective: it was 4% of the initial valuation given by 284 Partners. As Harris notes, the deal was monopsony (monopoly power by the buyer) gone wild.

The reader is invited to read the Harris piece in its entirely but, even after a careful perusal, two comments remain. First, there is the question is the role of investment banks, especially in connection with the early estimates that proved to be delusionally oversized as a matter of market dynamics (though there is some question whether this particular market was distorted by anti-competition law forces). Did the banks contribute to an environment that was conducive to bubble-like estimates in the value of the portfolio? Second, is the discounted cash-flow analysis still defensible or have we reached a stage where top financial minds need to come together with IP types to develop a more valid and reliable measure of patent portfolio valuation?

Finally, for those of you too young to remember Barbarians at the Gate, see here.

“A Kodak Moment” or “Rembrandts in the Attic”: The Valuation for the BlackBerry Patent Portfolio

On the heels of the announcement that BlackBerry would start looking “at strategic alternatives,” the web has lit up with commentary and speculation on the value of the BlackBerry patent portfolio—a whopping 5,000 plus patents and almost 4,000 patent applications! (here, here, here and here) And, the value is – well, $2 billion.  Or, maybe $3 billion.  But, well, under some circumstances could be $5 billion.  Wow.  A $2 to $5 billion range?  To be fair, these valuations are being made “on the fly.”  I do hope that this time the folks doing the valuing are taking into account, at least, how extensive the licensing of the critical patents in the portfolio has been (apparently a mistake with the Kodak portfolio valuation), the existence of noninfringing substitutes, the relevant markets, the construction of the claims and potential prior art not considered by the relevant patent offices. (How much is that analysis going to cost?) 

Could the portfolio be a "Rembrandt in the Attic" (or a lot of them)?  Again, how extensive has the licensing of the patents been?  At least one analysis has pointed out that there is quite a bit of term left on some of the BlackBerry patents.  And, in early 2013, Intellectual Asset Management reportedly gave the BlackBerry Patent Portfolio a relatively high rating based on quality and quantity of patents and BlackBerry supposedly has been spending "$1.5 billion to $2 billion" on R&D a year. Here is the Envision IP analysis (and update) of the BlackBerry Patent Portfolio.  ThinkFire will release its analysis of the present BlackBerry Patent Portfolio soon.    Anyone need a shield or something to trade?    

Besides the valuation issue, it will be interesting to see if the BlackBerry patents are eventually used by so called “patent trolls” to hold up other entities since BlackBerry (Research in Motion) was such a famous “victim” of NTP and has been an outspoken critic of "patent trolls."  (the sword).  Again, anyone need a shield?  We shall see how the game plays out. 

Yahoo's Patent Bag

There's a little article over on the New York times about potential buyers renewing their interest in Yahoo. The company's investments in the Chinese e-commerce group Alibaba as well as its 35% stake in Yahoo Japan are often seen as potentially valuable assets. Indeed an investment group has already begun a USD 1.6 billion tender offer for shares in Alibaba (see here) which would value the company at USD 32 billion and Yahoo's stake at around USD 13 billion. Nobody has yet focussed on the IP rights in Yahoo. ThomsonInnovation are today recording 3051 individual patent families and currently 657 granted US patents - as well as a huge number of patent applications currently in process. The range of patent rights is fairly wide and a brief review shows that it covers many aspects of Internet technology. This author has not yet reviewed the portfolio in any detail, but given the volume of the portfolio, it would be surprising if there was not at least some golden nuggets in the bag. The recent Google/Motorola Mobility and Nortel deals showed the value of patents in the telecommunications sector. Much of their value has been due to the development of standards using patent technology. This has been encouraged by the telecommunications standards bodies who accept that stakeholders in the standards development process want to receive rewards based on licensing of their patents. On the other hand the Internet community has been much more reluctant to adopt standards on patent technology requiring payment of licenses. There's still nothing to stop a company from patenting its technology, but the W3 consortium wants to see royalty-free licenses as its patent policy clearly states. This means that patents may have a lower value than otherwise (as there is no mechanism to obtain royalties).

Nortel's Patent Assets

We've reported from time to time on the planned sale of Nortel's patent assets which have attracted the interest of a number of companies, particular the portfolio related to the sale of the assets related to the forthcoming LTE (long term evolution) and SAE standards. Reports indicate that Nortel may have seven patents of the 105 declared relevant patent families.

An exclusive report in Reuters indicates that the sale should be completed in the next few weeks. Front runners include both Apple and Google who are probably looking to build up their telecommunications-related patent assets as a bargaining chip to gain access to patent essential to the operation of mobile telecommunications. InterDigital is apparently also interested, whilst Reuters could not elicit a comment from Canadian telecommunications company RIM which had apparently previously a view that the patents were a national asset to Canada.

The value of the patents to newcomers in the telecommunications field, such as Apple and Google, is clear. Apple will be budgeting for licensing fees for access to essential patents to be able to implement telecommunications standards. Any patents they obtain can then be thrown into the pot to reduce the payments. Google are presumably currently relying on HTC for the IP rights - but would no doubt welcome access to a larger telecommunications portfolio in the mid-term to reduce any payments for cross-licence agreements to which they might need to sign up. No doubt a number of patent trolls or NPEs will sniffing around to see whether the portfolio has sufficient value to be able to make a return on the investment, as Joff Wilde has reported here.

Reuter's reports that Nortel's 4000 patents have been split up into different packages covering different technologies, including wireless handset and infrastructure, as well as optical networks, Internet advertising and computers. Given the need for interoperability in the telecoms field and Nortel's possession of seven highly relevant patents, it seems that these seven patents may be highly valuable. However, purchasers may be disappointed if the patents are ever litigated, as there may be potential prior art not considered by the patent office which could severely damage the value of the patents as both IP.COM and InterDigital have had to learn over the years. Both have had to live with patent rights that have been limited after a court action.

Technorati Tags:
Patent Sale, Standards, Telecommunications, Nortel

Has the Great Patent Fire-Sale started?

IP Finance thanks Richard Gallafent for drawing its attention to this item on Bloomberg by Howard Mustoe, "Cash-Strapped Technology Small-Caps Hold Patent Sales (Update 1)". This feature describes how small-cap technology companies, struggling to raise enough money to survive amid the credit crisis, are selling their prized patents to stay in business. Ocean Tomo's Andrew Ramer is quoted as saying:

"They can essentially raise cash without diluting existing investors. Selling their patents and keeping a license back allows companies to have their cake and eat it, too”.

Numerous other expert opinions are cited, including that of seasoned IP lawyer Marija Danilunas (Dewey & LeBoeuf LLP), who warns:

“Watch out for venture capital buying the patents of companies that have gone bankrupt. They’ll take advantage of bargains”.

This blogger believes that the best way to stop venture capitalists buying bargain-basement patents from bankrupt businesses is to bid against them and raise the fire sale price -- but market forces dictate that this will not happen unless potential bidders (which presumably include the bankrupt business's competitors) reckon they can make more from these patents than it costs to buy them, while the elimination of a competitor may itself correspond to the elimination of any good reason to bid high for the deceased firm's IP.