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August 8, 2017
While everyone has hopefully been enjoying their summer vacation, something interesting has happened in the past few weeks in the IP market. More in a minute… But first, we recently sent to prospective buyers 3 very interesting patent portfolios that are among the best we’ve had for a few years. You can read a high-level summary of each of those (and others) here and can inquire at firstname.lastname@example.org if you would like to receive the full executive summary.
Okay, let’s start with the never ending USPTO director saga. As of today, we still do not have a new director despite some continued candidate vetting. This continues to undermine the agency that has been working with either a lame duck director, an “acting” one or none at all since November 2016. Meanwhile, the Trump administration (always keen to avoid any perceptions of having ties with Russia) did not manage to stay off the radar; and has officially named Vishal Amin as their new… “IP Czar” after he had been confirmed by the Senate. To be fair, although the “Czar” title is customary, his real title will “Intellectual Property Enforcement Coordinator” and his role is to help coordinate anti-piracy efforts between various federal agencies.
The same week, President Trump apparently not happy with China’s feeble objections over the North Korea nuclear program, announced that he plans to open a probe against China’s IP theft and for making it difficult for US companies to access the vast Chinese market. For those who have been reading this newsletter, the irony won’t be lost on the fact that it is the US that is currently suffering from a pro-infringer syndrome, while China has been beefing up its IP enforcement system over the past years. Just a couple of week ago, Chinese President Xi Jinping “called for strengthened intellectual property rights protection and more stringent punishment for infringement” and declared that “IP infringers will pay a heavy price”. In parallel, the Chinese patent office (SIPO) announced that it was going to prioritize patent applications (and re-examination) “of patents on energy saving, environmental protection, new-generation information technology, high-end equipment manufacturing, new energy, intelligent manufacturing”, etc. And finally, China’s Higher People’s Court released new guidelines to clarify the availability of injunctive relief, even for Standard Essential Patents (SEP). For those resigned to the fact that it has been almost impossible for well over a decade for patent owners use the threat of an injunction to keep infringers honest, let alone for SEP, this is a major shift in trying to reestablish the full strength of patent rights; the only twist is this is actually happening in China… If you need more evidence that this is more than smoke and mirrors: a large US based NPE, GPNE Corp., is banking on these developments and currently suing Apple for $130M in China (of all places) for the alleged infringement of SEPs they own. In contrast, Japan is taking a diametrically opposite view and has threatened to subject SEP to a compulsory licensing scheme, which is pretty much the current de facto situation in the US.
Okay, you’ve made it this far; so here it is what REALLY grabbed my attention the past few weeks and may indicate that we are entering a new phase in the IP marketplace.
First, remember that for any market to be vibrant and sustainable, you need i) a certain equilibrium between supply and demand; ii) a reasonable level of clarity over what is being transacted and; iii) a mutual understanding as to what the goods being transacted are general worth. This is not where we have been the past 3-5 years, as we have seen a lot more sellers than buyers, a substantial majority of patents being challenged have been deemed invalid and there has been no real consensus on patent valuations, except that they were down significantly from a few years ago.
Well, here are a few signs that now point in the right direction for those of you, like me, who want to see their glass of Sangria half full. These are still embryonic, but nonetheless encouraging cues. First, we are starting to see new assertion based buyers coming in who are willing to pay cash upfront for patents.
We recently wrote about a few of those just formed IP funds who claim to have tens of millions available to acquire patents. The latest in this group is well known NPE Dominion Harbor who just announced the creation of a new $50M investment fund to that end. When NPEs announce new investments of this nature, they either see things other don’t or are just wrong. Given DH’s track record historically, we will give them the benefit of the doubt that they know what they are doing. (They also profit from NOT being a Public IP company (PIPCO), which was never a good model to start with if your opponents can know any day how much cash you have in the bank).
Second, we are starting to see some Fortune 500 companies jumping into the fray and become more actively involved in the market but this time… as sellers. We will be able to report more on this soon. But one can easily appreciate that once large tech companies start exploring monetization of their own patents (and arguably get a fair price for those), they will have to tone down some of their own rhetoric that has been so detrimental to patent rights lately. We also saw an interesting announcement a few days ago whereby AT&T, Lenovo and Rambus have pooled resources to offer patents to startups against equity. This is a clever way to obviate the current uncertainty about patent valuations and rather trade in an uncertain asset class for an equally uncertain good of somewhat speculative value, shares from a startup… Regarding the uncertainty over the validity of patents, we also noted several decisions in the past weeks where the Federal Court circuit overturned PTAB findings where a given patent was found invalid, hopefully sending a clear signal that the tribunal is too often too dismissive of patent rights It is interesting to note also that new IPR petitions before the PTAB have gone down from a historical high 548 in Q1 2017 to only 287 in Q2 according to a recent Lex Machina report (see table below).
Most explain this sudden fall to the fact that the US Supreme Court has recently accepted to hear a case (Oil Sands) that could make IPRs unconstitutional. Time will tell.
On the other hand, actual patent lawsuits in the US were up almost 20% in Q2 over Q1 according to the same report, which one can interpret two ways: 1) we still have a patent troll problem or; 2) we have an efficient infringer problem Based on our own discussions with several agents in the IP ecosystem, our belief is that it is by far the latter, as suing infringers is still the only safe way in the US to get their proper attention and engage in a dialogue over what should have been a normal discussion around licensing, but for the infringer refusing to even sit at the table before it is sued. Maybe the recent announcement whereby Apple agreed to pay Nokia a whopping 2 billion dollars in IP royalties for access to the Nokia portfolio will send a message to the IP community that intellectual property rights ARE indeed valuable and must be compensated accordingly. One only wishes they will hear the call.
Other news and recently announced deals below