Jack Ellis

In one of the more elaborate IP deals seen of late, US publicly traded IP company (PIPCO) Document Security Systems (DSS) has teamed up with litigation funder Juridica Asset Management and Korean sovereign patent fund (SPF) Intellectual Discovery to monetise a portfolio of the latter’s patents.

According to an 8-K filing with the US Securities and Exchange Commission earlier this week, DSS will receive a total of $13.5 million from an entity named Brickell Key Investments LP (BKI). Of this, $9 million will be used to acquire a licence and a portfolio of patents relevant to LED technology from Intellectual Discovery, as well as to cover attorney fees and out-of-pocket expenses for legal proceedings arising from future enforcement of the portfolio.  

The remaining $4.5 million is specifically set aside for covering the costs of defending inter partes reviews (IPRs), “or other similar proceedings that may be filed… by defendants with the US Patent & Trademark Office… and for its general working capital needs”.

In return, BKI will get a cut of any monetary proceeds that DSS manages to generate through monetising the acquired patents, on top of repayment of the initial funding amount. Once the PIPCO has satisfied the returns due to BKI, Intellectual Discovery will be entitled to a percentage of patent monetisation proceeds; anything remaining will be retained by DSS.

Back in February, BKI entered into a funding agreement with another PIPCO, ParkerVision. A press release announcing that deal identifies BKI as a special purpose fund managed by litigation finance firm Juridica. Richard Fields, currently Juridica’s chief marketing officer, was named by IAM among the top 40 individuals working in the IP asset marketplace back in 2014 when we published the first of of our annual ‘Market Makers’ lists, and he was serving as the firm’s CEO.

PIPCO investor and IP Hawk blog author David Hoff, who first alerted IAM to the agreement, suggested in a Tweet that the BKI package amounted to a decent litigation budget considering the current environment, leaving DSS “well prepared for the future battles”.

There are a few striking aspects to this deal. First is the ringfencing of dedicated capital to deal with the near-inevitable IPRs that now accompany any major patent assertion. That provision has been made for this indicates that financiers like BKI now see IPRs as part-and-parcel of patent licensing – or, to put it another way, an unavoidable cost if you’re getting involved in the patent monetisation business.

The second thing to note is that this is just the latest of several deals in which NPEs have turned to third parties in order to finance their monetisation efforts by trading a share of the proceeds. The company that stands out as the obvious leader in this field is Fortress Investment Group, which DSS itself has previously struck a financing deal with; Inventergy is another PIPCO that has received multiple injections of Fortress funding. With the licensing and assertion environment the way it is in the United States at the moment, these kinds of agreements are becoming more common as patent holders look to share some of the increased risk and associated cost burdens with third parties.  

Which leads us on to the last point. Both DSS and Intellectual Discovery are patent owning companies that can be said to have hit upon something of a sticky patch. DSS – which also runs a product business alongside its patent monetisation operation – has been among the quieter PIPCOs of late, with little in the way of big acquisition or sales news, or any especially positive developments in its licensing and assertion efforts. It would therefore seem significant that it has struck this cross-border deal to purchase and monetise a patent portfolio for which, it would seem, there are high expectations of generating returns, judging by Juridica’s involvement. (It may be worth noting here that DSS has acquired patents from a Korean company before; USPTO records show it was assigned 115 US patent assets in May 2014 by semiconductor foundry Dongbu HiTek, which has also assigned IP to Intellectual Discovery. It is possible that this link had a role in the deal announced this week.)

Intellectual Discovery, on the other hand, saw its CEO Kwang-Jun Kim quit last month amid what he claimed to be a budget crisis at the SPF. Quoted in a feature in the most recent issue of IAM, Kim suggested that Intellectual Discovery would become a fully privately held entity, and that hook-ups with other patent monetisation companies may well be on the cards. “Going private means we would have a little more freedom – we would be able to broaden our horizons, perhaps working with non-Korean operating companies and partnering with other NPEs, if those scenarios are consistent with our strategy and goals,” he told me. The DSS transaction seems to fit this picture pretty well; but it is likely to be one of the last deals to have been done largely on Kim’s watch. Whether the person who steps into his shoes continues along this course remains to be seen.