Joff Wild

One of the largest banks in Canada has more than doubled its valuation of the Blackberry (RIM) patent portfolio, following the publication of the US Patent 100 in issue 58 of IAM magazine. In a briefing paper dated 7th February, analyst Gus Papageorgiou of Scotiabank - the third largest in Canada by deposits and market capitalisation - explains that the data contained in the 100 feature, which was prepared by Erin-Michael Gill, the chief IP officer of MDB Capital Capital Group, had caused a rethink of the bank’s “relatively conservative approach to valuing BB's patent portfolio”. He writes:

Patent portfolios remain a key strategic asset in this industry and the stronger the portfolio, all other things being equal, the better for the company. In the past we have been taking a relatively conservative approach to valuing BB's patent portfolio – placing the value at under $1.2B, which includes the $770M paid for the Nortel patents and the roughly $345M paid for certain patents acquired from Ericsson. However, a recent article in the March/April issue of Intellectual Asset Management (IAM) magazine, has caused us to believe our valuation may be far too conservative. IAM ranked the top 100 US patent holders (BlackBerry ranked #82) but also identified 14 companies with Stand-Out portfolios. These companies were recognized for the size of the portfolio (over 3,400 patents granted) the rate of growth in patents granted (applications), and the rate at which these patents were being cited (Tech Score).

Blackberry was one of those 14. Although Papageorgiou (quite correctly) recognises the risks inherent in valuing any patent portfolio – warning that “although the findings from this relatively extensive analysis provided by IAM and MDB Capital Group points to a much stronger showing for BlackBerry than we would have guessed it does not guarantee these patents have significant commercial value”; and observing that a key Apple patent named in the article had subsequently had all 20 of its claims rejected by the USPTO – he states:

BlackBerry currently holds roughly 7,597 patent grants and applications. To put that into context in 2011 Nortel sold over 6,000 grants and applications for a price of US$4.5B. Again, it is difficult to draw any conclusions on these numbers alone. The Nortel patents went up for sale during a highly litigious period and were the only available extensive patent portfolio at the time – the economic laws of supply and demand worked very much in its favour. However, until this article we had assumed that BlackBerry's patent portfolio was not really all that strong. This article has challenged that position as it clearly indicates that BlackBerry maintains one of the largest, fastest growing and oft cited patent portfolios in the world. We had been putting a value of roughly $1,139M for BlackBerry's patents which was simply the value of the acquired Nortel patents ($770M) and the purchased Ericsson patents ($369M). But at this stage we believe that number is far too conservative. If BlackBerry's patents were only worth half of the Nortel patents (and remember there are more of them at 7,597 vs. roughly 6,000) that would put the value at $2.25B, over twice the value we had estimated.

The reason we teamed-up with Erin-Michael and MDB Capital Group on the US Patent 100 is that we looked at the research they had done and were very impressed by it. Although in the end any project like this is going to be based on methodologies that will always have a level of subjectivity in what they decide to leave in and out, Gill and his colleagues had clearly put a lot of resource, in terms of both time and money, into their work; while, very importantly, they were not making outlandish and exaggerated claims about what it showed. Instead, their approach was sober, level-headed and non-sensationalist (and, no, we do not have any kind of commercial relationship with them!). Thus, it is not a huge surprise to me that banks and others will look at the US Patent 100 and believe that it has a great deal of credibility: it does.

It is noteworthy that analysts at major financial institutions are now beginning to look more carefully at companies’ patent portfolios and, presumably, other IP/IC assets when they are making assessments. Given how important an asset IP is, and the coverage it has received over the last couple of years, they should be doing so – but it is still good to see proof that it is happening. And the more it does, the more mainstream an investment and business issue IP will become.

That said, when making assessments it is important to ensure that everything is seen in the proper context. For example, Papageorgiou notes that unlike BlackBerry Nokia is not included in the list of 14 entities with stand-out portfolios. That is absolutely correct, but there may be a simple reason: the company has assigned many of its potentially most lucrative patents to third party enforcement entities, such as Vringo, Sisvel, Mosaid and MobileMedia. Under the criteria that MDB Capital Group used to determine patent ownership, and from that the relative strengths of portfolios, Nokia would not be the owner of those rights – even though it has an on-going financial interest in the revenue streams they generate and may have contractual safeguards about ultimate ownership and control written into the deals they have done with what are effectively the privateers they have chosen to form relationships with. If Nokia had opted to retain unequivocal ownership rights over the patents it has assigned it may well have a stand-out portfolio too; but it made a different strategic choice. When making a fully-rounded assessment of companies’ relative patent positions from a business/valuation perspective ensuring that such things are factored in is important.

In short, it is gratifying to see the US Patent 100 taken so seriously, though it is not a surprise given the credibility of those who put it together. However, it should not be seen as a definitive or unique source of information about patent strength and/or value. It is one data point. To get the full picture, it is vital to consult many more.