Town Hall Meeting on IP Investments & Markets: Focus On Patent Transactions

Wed, 7/10/2013 - 8:13AM — INVESTMENTS

In late June, I attended the first Town Hall Meeting on IP Investments and Markets, presented by Ocean Tomo and hosted by the Center for Applied Innovation. Held in Chicago, it brought together leaders from the IP industry with investors and investment managers to discuss the potential for the IP asset class to drive corporate growth and act as a source of alpha for investors.

Over the course of two days, panels featuring the top thinkers discussed buying and selling patents, IP-collateralized lending, distressed investing, activism, enforcement funding, emerging IP markets, and change of control transactions. A major recurring theme was the state of the IP market, current challenges and the potential solutions. Even though the numbers are impressive – the growing number of transactions was highlighted and there have been some very large deals – the patent market is still developing.

It is clear that the focus on patent transactions is increasing.  For example, over the course of its existence, Allied Security Trust (AST) has seen 90,000 patents up for sale, with rates increasing each year. Indeed, the number of lots AST reviewed grew from 200 in 2007, to 1,200 in 2013. While the majority of the patents for sale are of lower quality, there are quality assets that could be available for sale for potential buyers, but are not in the market currently due to a lack of recognition of IP value from managers. There is also increasing demand for assets, with buyers including hedge funds, Asian companies, and US operating companies. These conditions provide an excellent opportunity to unlock the value of IP assets for rights holders that are willing to invest in the due diligence of identifying assets of high quality.  In addition, the recent public debt issue collateralized by Alcatel-Lucent’s patent assets is an example of how patent assets can be leveraged to create value outside of litigation or licensing.

However, the patent market has some challenges that are markers of its continued development. Indeed, John Amster, CEO of RPX, discussed the relative immaturity of the market, focusing on the high cost of transactions in the marketplace. The most obvious problem relates to the rise in litigation. Litigation is the primary method by which patents are transacted, but it has unsustainably high transaction costs. RPX estimates that less than 10% of the settled amount reaches the patent owner – the remaining 90% is spent on costs, including attorney’s fees. However, the market for transactions outside of litigation is poised to grow. As management becomes more aware of the value of company IP portfolios, and rights-buyers become more efficient in identifying available assets that fit their strategic needs, transactions for rights outside of the context of litigation should increase.  In addition, innovative new approaches to patent rights licensing such as the IPXI exchange provide new market-based platforms for IP licensing, increasing the options for monetization. 

One take-away from the sessions was that continued cooperation of industry players will be key to continued development. There was some debate on whether Congress could enact meaningful legislation, given the inability of entrenched interests to agree on reforms. Continued dialog such as the discussions at this event among leading industry practitioners is an important ingredient in the process.



Ocean Tomo’s Investment Banking practice brings IP financing, monetization and capital markets solutions to corporations and other intellectual property owners. Ocean Tomo Asset Management engages in public equity, special situations and private equity investing where intellectual property insight drives alpha creation. Investment Research works in parallel with institutional investors, hedge funds and private equity funds advising them on capital allocations to IP-themed investments.


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