Intellectual Ventures’ deal involving Dominion Harbor is firm’s biggest ever disposal

Intellectual Ventures has sold a portfolio of around 4,000 former Kodak patents to Dominion Harbor in another sign that the IP giant is actively seeking to slim down its holdings.

This is the fourth deal that IV has done with Dominion, including one in November last year which saw around 50 assets change hands. The firm also sold patents to Equitable IP, the monetisation business led by former ICAP Patent Brokerage CEO Dean Becker, as it has upped its rate of disposals. This blog reported last year on the transfer of assets to a company called China Star Optoelectronics Technology (CSOT) by what appeared to be an IV vehicle. But none of those deals approach the size of the Kodak transaction with Dominion.

According to Cory Van Arsdale, IV’s senior vice president of global licensing, the firm has recently been selling patent packages at a rate two or three times higher than its traditional annual average. “We saw a significant uptick in the third and fourth quarters of last year, and the first quarter of this year is keeping up with that,” he revealed.

Given that they come from one source, the legacy Kodak assets could be marketed and sold more easily than patents bought from disparate owners. “The issue with doing deals of this size is how you package them up,” Van Arsdale said. He also confirmed that it was the biggest sale the business had undertaken.

Although IV is far better known for acquiring assets, having amassed 70,000 since it was formed, it has also looked to trim its patent arsenal from time to time. A detailed analysis of the company’s portfolio published in the May/June 2016 issue of IAM, written by Richardson Oliver Law Group, found 751 assets formerly owned by IV that had been transferred to third parties.

Van Arsdale commented that IV is continually looking at its portfolio: some disposals are a case of responding to a specific demand from a buyer, while others, including this Kodak deal, were more of a matter of pushing assets out into the market to see if there is interest. Dominion was one of several possible buyers that IV considered for the transaction, he confirmed.

Since its formation in 2000, IV has built one of the largest patent portfolios in the US - mostly through acquisition, but also through internal filings from its own invention teams. A portfolio of tens of thousands of grants gives the firm significant market penetration, but can also throw up challenges in terms of dealmaking with every potential licensee before the patents start to expire. What’s more, maintenance fees for such a large stockpile quickly mount up, adding to the cost base. “We continue to value aggregation but some of these portfolios are probably better off going out to a business like Dominion that can target parts of the market that we can’t get to,” Van Arsdale said. “If you try to do everything yourself you’re going to run out of time.”

IV originally acquired the patents from Kodak alongside RPX in late 2012 for $525 million following the iconic film maker’s entry into Chapter 11 proceedings. That transaction was backed by a dozen tech companies — including Apple, Google, Microsoft, Facebook and Huawei — which received a licence to the portfolio before the vast majority of the assets were then transferred to IV. The deal with Dominion is understood to include all of the Kodak patents that IV originally acquired.

While some big smartphone and digital imaging players are therefore covered as a result of the 2012 purchase, Dominion CEO David Pridham stressed that there are numerous sectors - including medical devices, drones and autonomous vehicles - that were not targeted by either IV or Kodak. “The US smartphone market is licensed with some outliers but that’s not really our play here,” Pridham commented. “From our perspective the play is all of the sectors that are completely untapped.” He revealed that also includes plenty of phone manufacturers in Asia.  

Neither Pridham nor van Arsdale would comment on how much cash exchanged hands upfront, although even in a depressed market it seems safe to assume that an eight figure sum was involved. The two sides have also agreed to a revenue sharing agreement so that IV will benefit from Dominion’s monetisation efforts in what appears to be a privateering-style structure.

Dominion's efforts, Pridham revealed, are unlikely to include large-scale litigation campaigns, but instead will focus on three areas: traditional licensing, seeding into start ups in return for equity through the firm's Monument Bank of IP; and from strategic sales to more mature companies, including possibly those considering an IPO that need to bolster their portfolios for defensive reasons. In the current climate such a strategy may seem like a big ask, but Pridham pointed to the list of companies that backed the original IV/RPX deal, including some that are particularly tough to crack in licensing terms; they, he insisted, help to validate the portfolio. 

While the deal is significant for IV, it’s also hugely consequential for Dominion. Formed by a group of former IPNav executives in late 2013, Dominion has largely focused its business on advisory services to help operating companies looking for a return on their IP assets and on acquiring its own patents to monetise. This has led to some notable client wins for entities including HP and Kimberly Clark.

On the acquisition front, Pridham said the business had done bigger transactions in terms of value and number of assets, but he described the Kodak portfolio as the most valuable that Dominion has picked up. That in part reflects a situation that’s currently very favourable to the buy-side. “We’re seeing a lot of great IP in the market which is increasingly undervalued,” Pridham enthused. 

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