Patent "arms dealer" expects big swing in acquisition market 10 Nov 13
Self confessed patent “arms dealer” Will Plut was in London last week for the second annual Standards, FRAND, NPEs and Injunctions conference, jointly organised by the Institute of Brand and Innovation Law (IBIL) and Taylor Wessing. Plut, the Silicon Valley-based principal of Patent Profit International, shared the stage with Henri Linde, Senior Vice President at RPX, and Sharaz Gill, former Head of Patent Litigation at HTC, for a session on the patent marketplace. According to Plut, exciting times are ahead.
While admitting that it is difficult to predict exactly what will happen, Plut believes Intellectual Ventures will be making major headlines soon. “They’ve been sitting still for some time but they’ve got a $3 billion fund coming up and that is a lot of money to buy patents. And they are going to be much more aggressive than they ever have been because of their corporate masters,” he said.
Plut also suggested that RPX would continue to grow as a key player in the market: “Watch this space, they’ve got some big things coming up.” In response, Linde said: “If I’m really optimistic in the next five years RPX is no longer a patent buying entity but an insurance company. We actually have an insurance division at the moment that insures against litigation but at this point we only cover good drivers, not the drivers who have two accidents a week. We would like to insure them but they wouldn’t like our premiums.”
The patent market has changed since its inception in 2003, Plut stated, and has reached an “inflection point”. He explained that up to 2008 sellers held sway, but then the balanced shifted and the market moved in favour of buyers. However, it could now be about to change again. “We are beginning to swing back hard towards the sellers’ market and the next five years will show this,” Plut stated. For evidence to back up this belief Plut cited a number of developments: greater understanding of what makes a patent valuable; more dedicated patent buying players; new defensive aggregators such as RPX; the size and number of funds supporting purchases; the number of transactions; and the size of completed deals.
There was much debate on the panel as to whether operating companies should build their patent portfolios organically or by going to the market. Gill suggested that new SMEs just do not have enough disposable income after paying licensing fees. According to Gill they “cut massively into your profit margins meaning that there is just not enough cash available”.
Plut agreed that going to the market to buy your way out of trouble is not cheap, but to do so “after the first missile is fired is suicide”. There are, of course, success stories such as when Yahoo! sued Facebook. The social network subsequently paid Microsoft $550 million for patents it had recently purchased from AOL and sent a message that it was willing to defend itself; as Plut puts it: “Yahoo went away with its tail between its legs.”
Certain companies have “stuck their heads in the sand” when it comes to patents, Plut claimed. Speaking specifically of Twitter’s recent trouble with IBM, Plut compared supply in the patent market to what is available in a deli: “If you want high end salami and it’s not there then you’re in trouble. And that’s the reality. You have to spend four to five years trying to build up that portfolio.” He argued that operating companies need to have an acquisition team in place that has freedom and a big budget to build a portfolio for both offensive and defensive purposes. “Facebook was able to buy the right portfolio at the right time. I don’t see another big portfolio coming up anytime soon, with the greatest respect to RIM.” This is bad news for Twitter, Plut said; especially as he was aware of four other companies waiting in line behind Big Blue to file suit.
In Plut’s experience there is a contextual nature to the value of a patent: “If you are being sued by Yahoo! the cost of any patents in relation to Yahoo! just went up for you. I love it. I’m an arm’s dealer; I have these shopping lists from clients. In 2013, if you’ve got something on Ericsson or Nokia then there can be seven figures on the table from 12 guys looking to buy. But it might not be there in 2014.”
“Software is eating the world,” so the saying goes. Developing that theme, Plut said: “There will be over 2,000 start-ups founded this year in Silicon Valley. And you’re not going to hear of any of them until they are a problem. Companies like LinkedIn and Dropbox - all these SaaS [software as a service] companies - are having massive impacts. They don’t have patents, though, as they don’t believe in them, so they are going to go to the market and buy them.” And for Plut and other patent arms dealers like him that can only be good news.
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