New $50 million patent fund underlines latest era in IP investment 03 Aug 17
It’s not often that an investor commits to spending tens of millions of dollars on patents so the news from earlier this week that Hawkeye Ventures was pairing up with Dominion Harbor to launch a $50 million fund to buy grants worldwide was enough to raise a few eyebrows. The trials and tribulations of trying to monetise assets in the US would be familiar to anyone who reads this blog thanks to the challenges posed by inter partes reviews (IPR) and changes in the law governing patent eligible subject matter. That is a double-edged sword for investors as it means that realising a return from assets has become much harder but also that patents are as cheap as most people in this market can remember. It doesn’t take a plugged-in broker to tell you that $50 million will buy you a lot of IP.
Dominion was behind one of the patent deals of the year when it picked up around 4000 former Kodak assets from Intellectual Ventures and so it has a pretty good take on both what assets are out there but also what sort of licensing appetite there is for large scale portfolios. Earlier this week I caught up with Dominion Harbor CEO David Pridham to hear a little more about how the deal came about and their plans for monetising any assets they acquire.
While Pridham and his team had been keen to get a fund together since they started Dominion in 2013, Hawkeye initially approached them to learn a bit more about investing in the IP space. Those discussions raised the possibility of partnering together on a fund and as the two sides discussed the opportunities the amount of investment capital grew from an initial $10 million.
Hawkeye doesn’t have much experience in the space but they do have access to a lot of capital and according to Pridham, “saw the opportunity to develop these type of programmes and invest in IP”. Their head was also turned by asset values in the US.
“It’s sort of like the US real estate market back in 2008/2009,” Pridham pointed out. “It’s an incredibly undervalued market right now and there are huge portfolios that people won’t even touch because of 101 concerns or other risks. Our view is that you cut through all that stuff and there’s a lot out there to invest in.”
The goal, Pridham revealed, is to replicate what Dominion has done with the Kodak assets but on a much larger scale which means investing in five to ten portfolios per year sourced globally. That throws up some interesting questions around the debate on whether the priority for monetisers should be on quality or quantity of assets. The Dominion head said he took a dim view of that argument insisting that he subscribed to the view, espoused by the likes of former Chief Judge Paul Michel, that a patent is either valid or invalid.
“When you have quantity in certain sectors where you can show the value of specific families, like we can do with Kodak, then you’ve got something there,” he commented “Quantity moves the needle on what people are prepared to pay for a licence.” Pridham conceded that you obviously need to have patents that read on specific technology and that you can’t show up with a portfolio that has significant, discernible problems.
Plus licensees are less likely to take a licence to a huge portfolio where many of the patents may not be directly relevant to the sector they’re operating in. The recent struggles of IV to monetise its vast stockpile of assets is testament to that.
But Pridham maintained that there is a clear advantage to having a critical mass of assets. “Part of the strategy here is to be build up verticals in different technology sectors and when you can build up verticals with hundreds of patents in them, with multiple shots on goal, it makes it very difficult to kill a portfolio.”
More than anything, Dominion’s partnership with Hawkeye underlines how large parts of the IP investment market has changed in recent years. It has been clear for several years that the public markets have fallen out of love with pure-play patent licensing businesses as a swath of public IP companies (PIPCOs) have struggled and most have pivoted into other sectors. Monetising portfolios in the full glare of the capital markets has given alleged infringers an edge in litigation as they simply look to drag out court cases and drain a patent owner’s cash.
The new fund doesn’t have bottomless reserves but it does have the clear advantage of making acquisitions and launching monetisation campaigns without the need for regular disclosures to the SEC. And with plenty of buying opportunities out there, Hawkeye’s move could herald a new chapter in private investors taking a much closer look at patent monetisation.
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