For more than a decade, transactions of patent assets have been characterized by declining pricing trends on a per asset basis, and this downward pressure on price continues today. Data collected by ThinkFire on patent transactions that took place between 2002 and 2008 reveals a higher median but a lower average cost per patent family in 2008 as compared to the overall period covered in the study. This was due to two primary reasons: (i) a number of patents in 2008 were transacted at prices substantially lower than the 2002-2007 average and (ii) 2008 saw a higher frequency of deals in which patents transacted at prices above the 2002-2007 average.1
According to a more recent study conducted by Erik Oliver and Kent Richardson, The Brokered Patent Market in 2013, the majority of patent sellers tend to be small and medium-sized enterprises, with a few reoccurring patent-purchasing entities such as Intellectual Ventures, AST, and RPX.2 The study also revealed a positive correlation between the provision of an EOU (Evidence of Use) mapping and both the price per asset and the probability of sale. According to experts in the patent transaction space, the provision of an EOU has increasingly become an integral component of the sales process.3
According to the same study, the 2013 patent transaction market for deals containing fewer than 200 assets per package was estimated to be $283 million, with broker fees of roughly $57 million.5
The current transactions market faces an abundance of supply driven in part by the following factors:
» Companies are looking to drive earnings by discontinuing products or divesting of business units; especially apparent in Telecommunications, Networking, and Consumer Electronics.
» Individuals/companies have failed to commercialize their patents, forcing them to liquidate holdings.
» Many entities hold late stage patents (<7 years remaining life) and must decide to monetize now or let patents expire.6
However, as the graph below depicts, assignment volume (which will be correlated with transaction volume) has fallen dramatically over the past few years.
*Calendar year to date through December 3, 2014.
The reason for this decline is that, in light of recent case law and legislative reform:
NPEs and other patent aggregators have gradually become more risk intolerant
Some NPEs and other patent aggregators have shifted their focus towards revenue generation after facing capital constraints due in part to not generating the type of revenue they initially forecasted
Operating companies have become much more selective in what they acquire
While there are currently fewer transactions involving NPEs, operating companies seeking to build a defensive patent portfolio have become more prominent players in the patent marketplace.8
The present high supply and low demand has depressed patent prices and created a “buyers’ market,” which can be taken advantage of by operating companies and NPEs alike.
A special thanks to Elizabeth Quinlivan and Patrick Fagan for contributing to this blog post.
2. The Brokered Patent Market in 2013 by Erik Oliver and Kent Richardson. This study focuses on patent packages compiled from patent brokerage firms. The data collected summarizes patent packages between June 1st, 2012 and May 31st, 2013. During this time period, 296 packages containing 9,359 total patent assets worldwide, including 4,316 U.S. patents, were evaluated. The data excludes any very large deals (over 200 patents) or deals that were not widely distributed.
3. 2014 LES Germany, Transactions State of the U.S. Patent Market, November 14, 2014, James Trueman
4. The Brokered Patent Market in 2013
6. 2014 LES Germany, Transactions State of the U.S. Patent Market, November 14, 2014, James Trueman
7. Ocean Tomo Patent Transactions Database; www.oceantomo.com/transactions; Based on calendar year full assignments recorded; does not reflect volume of patents recorded; calendar year to date 2014, through December 3, 2014.
8. 2014 LES Germany, Transactions State of the U.S. Patent Market, November 14, 2014, James Trueman