Richard Lloyd

Defensive patent aggregation firm AST celebrates its 10th birthday this year at a time when it is on something of a roll. Last year, the firm successfully coordinated IP3, which, in a first for the market, brought together a group of operating companies to offer patent owners a quick and efficient way of selling their rights. It has also started to expand its reach into new markets in Asia; relaxing its rules around buying portfolios so they no longer need to include a US grant. What's more, it has raised the possibility of moving back into the market for some of the largest deals, with management admitting that it looked at a possible bid for the Yahoo!’s Excalibur portfolio.

This week AST board members gathered in Washington DC for one of their quarterly board meetings. I caught up with CEO Russell Binns and senior vice president for business development Linda Biel, as well as representatives from member companies including Manny Schecter and Andy Wojnicki from IBM, Philips’ CIPO Brian Hinman and James Kovacs of Intel. Hinman was the first CEO of AST so has a unique perspective on its development.   

When it formed in 2007 AST was something of a defensive patent market pioneer. It was a year before RPX’s birth and several years before Unified Patents came into existence. The secondary market for patents was still in its infancy; or, at least, far less was known about the assets that were changing hands and often being picked up by NPEs. Large parts of the deals market remains clouded in secrecy, but today patent owners have access to far more information about the possible threats that they face thanks to the efforts of AST and others to inject more transparency into the market.

“My big thing is transparency so I want to see what’s out there and I want to see what companies are doing in buying and selling and how it affects me,” Hinman points out. “I have a team that looks at that very closely and looking at the opportunities they send us and ask, “is that a threat?” because that’s the big problem, you don’t really know what can happen so having a cost effective means of addressing that is very attractive to me.”

Greater transparency may be one of the big shifts in the deals market, but there has also been several profound changes over the last decade in the broader patent landscape, thanks in part to key court decisions around the availability of injunctive relief and patent eligible subject matter. Legislative reform through the America Invents Act (AIA) and the introduction of new post-issuance review proceedings in particular, have also shaken things up.

Those changes have been felt by all patent owners, but arguably no more keenly than by NPEs, which have seen their assertion threat blunted. Their troubles are part of the reason why the number of new patent lawsuits fell in the US last year to the lowest level in five years.  

That might lead to questions around the rationale behind businesses like AST, but management and members insist the threat is still significant. “You can have some reduction and still have plenty left over to worry about,” Schecter remarks. Plus there’s a long-term benefit to the platform which members should reap if lawsuits start to increase again.

“You have to think that the transactions being done today to license patents are impacting or eliminating litigation in the future,” Wojnicki exlains. “Who knows whether the litigation profile in the US is going to continue to decline but if you assume it’s going to turnaround at some point then the actions we’re taking today to reduce risk for future litigation are just as important as they ever were, particularly as prices are depressed now. I don’t see the need going away.”

Plus, today the secondary market is far more complex than in 2007, with much more activity to keep track of. “I think the model works just as well today if not better than it did 10 years ago because now there’s a bit more liquidity in the market,” Binns comments. “When Brian was CEO of AST there wasn’t much of a brokered market out there, it was very difficult to find patents for sale. Now you have a much more robust marketplace.”

AST’s membership has grown conservatively, in part because when it started it only included businesses with annual revenues of more than $5 billion. Today it has 33 members including the likes of Google, Microsoft, Sony and, more recently, Honda and Ford from the rapidly evolving auto sector. Binns insists that that growth won't see a significant uptick any time soon. “Slow and steady is the model right now,” he explains. “At some point we’re going to get to the level where we’re going to have to change our board configuration – sometimes it’s hard enough having 30 bosses, when I have 50 that might become too much!”

Undoubtedly, AST boasts a group of members with serious patent-owning sway and very deep pockets, but despite that the firm's last large public deal was its 2012 acquisition of a portfolio of assets, along with chipmaker ARM, from MIPS Technologies for $350 million. On the more recent acquisition of the former Nortel patents from the Rockstar consortium, it was noticeable that it stayed on the sidelines while its profit-making competitor RPX orchestrated a deal.

AST’s absence from the market for very large transactions in part reflects its conservatism, something that in the current climate looks to have served it well. That might change, however, as Binns admits that he tried to generate some interest among AST members to buy the Excalibur portfolio that Yahoo! put up for sale last summer. That interest didn’t materialise, in part perhaps because questions linger over just how much the portfolio is worth - particularly in today’s market.

Undoubtedly the most significant initiative that AST has launched in recent years was last year’s IP3 programme, which was a follow-up to the Patent Purchase Promotion that Google launched in 2015. Both gave sellers the opportunity to offer their patents for sale, name their price and expect an answer on any potential acquisition in a relatively short time. IP3 brought together a who’s who of the tech world including Microsoft, Google, Facebook and Apple, in the kind of collaborative effort that has, at times, been sorely lacking in the patent market. 

According to Binns there are several lessons from IP3 that AST is now trying to offer sellers as part of its regular deal making, rather than as part of a one-off initiative. “There does seem to be room for fixed-price purchasing, that seemed to work very well, as did having a short duration of time which was very attractive to sellers, and the ability for our members to collaborate more on fixed purchasing,” Binns says.

Thanks to IP3 and AST’s day-to-day business, it has as good a perspective as any on the state of the deals market. The adverse conditions in the US mean that patent values have largely collapsed in recent years, although Binns now insists that “the next leg is upward” thanks to recent, more positive court decisions for patent owners. Plus, there’s more value now being attached to overseas patents. “We’re starting to see in some of the families we’re buying that there’s valuation on European and Asian assets separately from the US assets so some of the family pricing is slightly moving up,” Binns reveals. That suggests that the greatest growth potential for AST now lies outside of the US.

Both Binns and Biel report that they’re spending more time in Europe and Asia as overseas deals markets gain in sophistication. In an effort to make the platform more attractive AST has also changed the rule that said it would only consider portfolios with at least one US-issued asset. “We relaxed that a few years ago, kind of quietly, but we’re really starting to see now portfolios of pure foreign assets and more interest from our members,” Biel highlights. “And I expect that to grow both in terms of European assets and particularly Chinese assets.”

AST has done its first deals involving purely overseas grants and with the advent of the UPC Binns says he expects more activity in Europe as patent values increase. And as deal-making horizons expand so does the firm’s analytics platform, fAST IP, to include more data points on what are still relatively embryonic markets in Europe and Asia. There’s also the prospect of the first China-headquartered business signing up as a member — Biel won’t name names but she claims there are several companies that AST is actively engaged in courting.  

That greater complexity in the patent world and the evolution of the secondary market overseas mean that AST can justifiably claim to be even more relevant today than it was a decade ago. Its ability to change with the market will help determine whether the same can be said in another ten years time.