If patent prices are falling, it could just be a case of supply and demand 07 Feb 14
The average and median price paid for a US patent fell substantially in 2013, according to research released by brokerage firm IPOfferings. The Patent Value Quotient valuation method IPOfferings uses has found that the average price paid per patent last year was $220,588, with the mean price $170,000; falls of 37% and 23% respectively. But while on the face of it these are pretty hefty declines, they may not actually tell the full story of what is happening out in the market.
Along with its press release, IPOfferings provided a list of the transactions in both 2012 and 2013 on which its workings are based. These are either ones that have been made public or ones which the firm has managed to gain some information about (presumably including those that it took part in). There are not that many of them – certainly far fewer than were done in either year. What’s more, given the size of some of the deals closed in 2012 – for example: AOL/Microsoft; Microsoft/Facebook; InterDigital/Intel; and MIPs – there is not much of a surprise that average values fell in 2013, when IPOfferings reports just one nine figure acquisition – the IV/RPX purchase of the Kodak digital imaging portfolio (though even that was agreed in 2012). This will also have an affect on median values – buyers can only buy what is on offer and if what is on offer in one year is de facto not as valuable and/or as substantial as what was on offer in the previous one, then that will have consequences.
It is important to bear in mind that what IPOfferings are supplying is a very limited snapshot of the overall market. Hundreds of deals are done each year, directly and via third parties, and every deal is unique; involving different patents, of different quality, covering different technologies, in different industries. So, even if you had a full list of annual transactions it would be tricky to make year on year comparisons and to draw any meaningful conclusions. To be fair to them, IPOfferings have not done this. The New York Times, though, has had a go and has sought to tie the reported decline in values to recent judicial and legislative developments which, it says, may be affecting buyers’ strategies. At this stage, before anything concrete has happened in either the courts or Congress, that may be more wishful thinking than anything based on reality.
However, that is not to say that values are not declining. Another recent snapshot of the marketplace was a report on the brokered patent market in the US, a detailed summary of which was published in issue 63 of IAM. Written by Kent Richardson and Erik Oliver of the Richardson Oliver Law Group, who do a lot of patent acquisition work for clients, the article focused on the 296 patent packages that the firm reviewed between 1st June 2012 and 30th June 2013. These were provided by 55 different brokers. Subscribers to IAM can read the full article using the link above, but for the deluded few that continue to hold out against taking a subscription to the world’s finest IP publication, the 35,000 foot view of what they found can be seen here. Coincidentally, if you apply the 35% discount to the asking price which Richardson and Oliver argue is reasonable to assume to arrive at an actual sale price for the patents concerned, then you get $198,250. This is almost exactly halfway between the average and median patent prices for 2013 that IPOfferings report.
What Richardson and Oliver also state, though, is that far more packages are now being offered in the market via brokers:
Generally, we believe package flow has increased substantially. We estimate the number of new packages at 52/month. The most packages we saw in any one month was 48, however our buying programs focus on particular technologies meaning that we do not see all the packages on the market all the time. This number conforms with how much of the market we believe we are seeing and also with an informal survey of some of the largest patent buyers. This puts the overall market at 624 packages per year (last year we estimated 276 packages). We think that we underestimated the number of deals in the market last year and that there are more deals in the market … Private packages are not included in our data set. Private packages were sourced from our clients’ business development departments and from private, corporate to corporate sales. Private packages typically add about 5%-30% of the total packages in a month.
This does coincide with all the anecdotal evidence that I am hearing. There are a lot more companies out there looking to make money from their patents, via both sale and licensing. And, as this blog has reported recently, they are not all American. If there is a decline in patent pricing, it may be this increased flow of assets into the market that is causing it, rather than anticipation of any changes to the judicial and legislative environment.
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