As Patent Market Evolves, New Opportunity and Risk

Litigation trends offer some perspective on the patent market, but they don’t tell the whole story. Over the past two years, the America Invents Act and Alice have made their mark, but have proven to be neither silver bullet for infringement defendants nor death knell for patent owners. Patent litigation remains persistent if not consistent—with periods of volatility particularly troubling to emerging and mid-size companies—at a regular cost to industry of many billions of dollars a year.

Looking at recent market activity, however, we see evidence of a shift in the greater patent landscape, as NPEs and operating companies alike have been adapting to regulatory and judicial change.

Patent assets are transacting at more reasonable prices, as we’ve always said they should and would with the emergence of a more rational licensing ecosystem. At the same time, it’s clear that no one is giving up on patents as a lucrative and monetizable asset. Rather, we are seeing more investment—and more sophisticated transactions—by both NPEs and operating companies as they seek and seize new monetization opportunities.

Mutual Interests

An operating company selling off patent assets to an NPE isn’t news. But the sale of 300-plus patents by Siemens AG to Marathon Patent Group in August is notable for a few reasons. The transaction reflects an operating company’s focus on monetization as a significant part of its IP strategy—and it reflects Marathon’s continued commitment to its core patent assertion and licensing business model. Further, it shows intent by one of the biggest and most influential patent assertion entities to move into developing global patent markets. More than two-thirds of the patents in this transaction, covering critical cellular communications technology, are relevant in Europe and China as well as the United States. The rest of the patents relate to Internet of Things (IoT) technology, now one of the fastest growing areas of licensing activity. The Siemens-Marathon deal is just one example of an NPE aggressively pursuing enforcement opportunities in China and in Europe, and further signals progressing interest on the part of operating companies in seeking out mutually beneficial transactions with NPEs.

Panasonic’s recent deals with Inventergy and WiLAN and Nokia’s sale of assets to WiLAN, Acacia, and Vringo are other examples. A surge in merger activity across the technology industry also has fueled operating companies’ desire to monetize, often via deals with NPEs, as was the result of the NXP-Freescale combination and sale of assets to WiLAN.

Further, BlackBerry has been following through on an aggressive IP monetization strategy that began in 2014 when it formed a new division focused on leveraging its patent assets. It has reached deals with Cisco, Canon, and International Game Technology (IGT), and this summer BlackBerry filed its first infringement suit, against Avaya.

Progress—and Opportunity

Though the lines between NPE and operating company monetization strategies may seem to be blurring—with the threat of litigation an ever-present undercurrent—we at RPX have reason to be optimistic that the landscape is changing for the better. The deal we brokered with the Kudelski Group this summer set a precedent for how operating companies can most efficiently license their portfolios among each other. The transaction ended litigations in Germany and cleared millions of dollars in risk.

We are encouraged, too, by the persistence we’ve seen in transaction velocity: RPX closed more deals in 2015 than in any other year since our founding in 2008. Volume in 2016 is tracking to meet or exceed that—with an increasing percentage of those opportunities originating from operating companies. And, overall, participants on both sides of negotiations have displayed greater reason during the course of transactions. We look forward to guiding our clients in the pursuit of more innovative, and more rational, transactions in this rapidly expanding licensing ecosystem.