Trends in semiconductor patent transaction activity from 2013 to 2017

The semiconductor industry has undergone significant changes over the past five years. Semiconductors have continued to become smaller, faster and cheaper, while being applied to an ever-expanding range of industries. Patenting has also gone through a dizzying array of changes, including heightened requirements for due diligence, inter partes reviews that slow down assertion, venue limitations, the US Supreme Court’s decision in Alice and a shift toward globalisation.

Broadcom’s bid to take over Qualcomm is only the latest potential mega-merger in the semiconductor industry; the past five years have increasingly seen tech giants merging, acquiring each other, divesting and acquiring business units, and generally being traded like multibillion-dollar playing cards. These events do not necessarily translate into patent transaction activity but they do allow each party to operate with greater freedom under the umbrellas of one another’s portfolios.

So what does translate into patent transaction activity? And how have all these changes affected patent transactions in the semiconductor industry? Unsurprisingly, most patents that changed hands did so as a result of corporate events – mergers, acquisitions, renames and joint ventures. In examining the remaining transactions, we found that there were four primary types of these:

• frequent semiconductor patent buyers and sellers;
• licensing entities;
• event-driven transactions; and
• activity in new market entry.

This article looks at the semiconductor industry as a whole, as indicated in the conveyances filed at the US Patent and Trademark Office (USPTO).

Defining ‘semiconductor patents’

For the purposes of our analysis, ‘semiconductor patents’ are those related to making semiconductors, as opposed to those that use semiconductors. We have further divided them into two types: process patents and circuit patents.

Process patents typically relate to materials and structures, with ‘materials’ being the chemistry and methods of making semiconductors and ‘structures’ being the electrical components, sensors and emitters (eg, light emitting diodes (LEDs)) created on the semiconductor. Process patents often relate to manufacturing methods.

Circuit patents describe how structures are wired together to create circuits. While it might appear that every type of circuit function has already been invented, how they are implemented can change over time as the process technologies shrink, available transistor types and speeds change and other aspects evolve (eg, headroom, power budget and environmental restrictions). Circuit patents include patents on timing, codecs, amplifiers, converters, radios, memory and power. They also include system patents, which often relate to circuit architecture.

Semiconductor transaction trends

Some of our observations about the semiconductor industry over the past five years that guided our analysis include the following.

Semiconductor patent pricing remains flat

Prices of semiconductor patents have fallen less steeply than those of other types of patents. In most cases, the cost to develop a workaround on a hardware patent is prohibitively expensive; a defendant found to be infringing on a semiconductor patent must consider the costs of new masks, foundry delay, refurbishing existing stock, provisioning non-infringing spares in the service channels and redesigning a non-infringing solution. If there is no inexpensive workaround for the infringing defendant, the costs of avoiding a patent are far higher than a reasonable licence.

Figure 1. US circuit patents exchanged between 2013 and 2017

The full range of circuit technologies was included

Diligence is a fundamental part of patent transactions

As inter partes reviews are more commonly used as a response to patent notice, more certainty in outcomes may be realised by proactively investigating the validity of the patents being asserted.

Most large semiconductor transactions result from corporate events

Although our analysis showed that there are some patent deals happening between separate entities, most activity occurs as a result of mergers, acquisitions and the divestiture of business units.

Semiconductor patent transactions average five patents

There are two approaches to patent transaction purchases. The first is to review and analyse a target portfolio deeply and negotiate only for those patents that are seen to be valuable. The second is to move quickly to prevent others from buying patents of interest by moving into a large transaction that involves potentially dozens of patent families – once acquired, they can then be mined for additional value.

Operating companies tend toward the first approach, where they identify a few key patents to purchase. However, this approach is complicated by the fact that the seller usually recognises the core value of the patents and either makes them unavailable for purchase or increases their sale price.

Large financial intermediaries tend toward the second approach because they want to achieve revenue from their investments in the IP space and they want to incorporate high-quality assets into their own monetisation platforms.

With regard to the number of semiconductor patents per transaction for larger transactions (which encompass 94% of semiconductor patents conveyed), the average size was 37 patents for approximately 6,000 patents transacted.

For transactions involving the remaining 6%, the average transaction size is estimated at just under two patents, with 3,000 patents conveyed.

Combining these two figures, the estimated average semiconductor patent transaction size is five patents.

Figure 2. US process patents exchanged between 2013 and 2017

The full range of process technologies was included

Narrowing the focus

The goal of our research was to examine trends in semiconductor-related patent transactions over the past five years.

We decided to limit our dataset to patent transactions that had taken place in the United States as recorded with the USPTO as reassignments. The following sections describe the process we applied to narrow the results in order to better tell the story of semiconductor transactions.

Note that the dataset used in creating this article was harvested in late October 2017. It does not reflect transactions which may have occurred since then.

Finding reassigned semiconductor patents

Within the USPTO, we limited the dataset by including only transactions where a patent had been moved to a new legal entity. This resulted in a dataset of over 197,000 reassignment records.

Of these, we determined that just over 51,000 related to semiconductors – of which approximately 24,500 patents related to process and approximately 26,500 to circuits.

In the resulting set of approximately 51,000 semiconductor patents, we had to normalise the names of buyers and sellers. In cleaning the list, we determined that almost 1,200 companies participated in transactions covering approximately 48,000 or 94% of the patents under review.

The remaining 3,000 patents involved approximately 1,600 companies transferring up to three semiconductor patents. We parked this 6% for future evaluation, with the expectation that the 94% would be sufficient to tell the story.

Of the approximately 1,200 companies we found 733 assignors and 634 assignees participating in approximately 1,600 transactions. In some events where an assignee obtained many patents, multiple assignors were identified. Further, the top 10 assignees were involved in just over half of the semiconductor patent transactions.

Corporate event reassignments versus patent transactions

Next we classified the transactions into two groups.

First are corporate event reassignments, which include patents that changed hands as a result of mergers, acquisitions, carving off business units and corporate rebranding. These are mostly corporate transactions and include corporate operations and patent portfolios.

Second are patent transactions, where patents are bought and sold between businesses for specific purposes. Within this group we identified four key groups of buyers:

• frequent semiconductor patent sellers and buyers – organisations that transact patents on a regular basis;
• licensing entities;
• event-driven transactions – for example, a purchase made to help with a negotiation or to launch a new business venture; and
• organisations active in major markets.

Findings

Figure 3. US circuit patents transacted between 2013 and 2017 that did not involve a corporate event

Licensing entities favoured memory patents

Corporate event reassignments

Of the approximately 48,000 transactions in our dataset, roughly 42,000 were associated with a corporate event.

Corporate events are by far the dominant reasons for semiconductor patent transactions. The category includes acquisitions of business units, acquisitions of whole companies, business unit divestitures, corporate splits, internal corporate restructuring, joint ventures, mergers and name changes.

Of these types of corporate event reassignments, whole company acquisitions were the most common, accounting for approximately 45% of semiconductor patent transactions (169 of 378).

Of the types of patents involved in semiconductor patent transactions within this group, process-related patents were most commonly traded in business unit divestitures, with 56% of them transacted under this category. Circuit-related patents were most commonly traded in whole company acquisitions, with 42% of them transacted under this category.

Figure 4. US process patents transacted between 2013 and 2017 that did not involve a corporate event

LED patents were in strong demand

Patent transactions

Large semiconductor patent transactions (four patents or more) that are not associated with a corporate event are less common. As corporate events typically involve large numbers of patents, it is safe to assume that the approximately 3,000 patents involved in the smallest deals of three patents or fewer are mostly patent transactions.

As stated previously, only approximately 6,000 semiconductor patents of the 48,000 we studied are not associated with a corporate event. These are divided into two assignee groups: licensing entities and operating companies.

Figures 3 and 4 show the circuit and process landscapes of patent transactions between 2013 and 2017. In these figures:

• each dot in the landscape represents a patent;
• black dots represent patents assigned to licensing entities;
• blue dots represent patents assigned to operating companies; and
• each peak shows a technology cluster, identified by the name of the technology, showing the patents most closely related to that technology within the landscape.

Looking at these landscapes, the wide distribution of patents indicates that patent transactions involve all the semiconductor technologies noted in the figures. The high concentration of black in Figure 3 shows that licensing entities tend to favour memory (circuit) patents, whereas the high concentration of blue in Figure 4 shows that operating companies have been pursuing LED and light producing (process) patents.

Frequent semiconductor patent sellers and buyers

We found a few examples of what we call frequent patent sellers and buyers. These organisations transacted a number of patents in at least three years of our study. This indicates targeted growth in areas of active business development, ongoing strengthening programmes or purchasing in response to an event.

Tables 2 and 3 detail patent transactions that do not include the acquisition of a corporation or business unit, and where the assignee is not a licensing entity. The average number of assignor semiconductor patents per assignee was 38.

Examples of frequent sellers include IBM, Infineon, Renesas and STMicroelectronics.

Examples of frequent buyers include Fujitsu, Siemens, Hitachi, IBM, Microsoft, Samsung, Intel and STMicroelectronics.

Licensing entities

Licensing entities may have been slowed by the inter partes review process, but they are still actively buying patents.

As a matter of housekeeping, we combined a number of companies under a corporate parent. Longitude Enterprises also includes PS5 Luxco and PS4 Luxco. WiLAN also includes Polaris, North Star, Collabo, Innovative Memory and Commercial Copy. Intellectual Ventures also includes III Holdings 1, 3, 4, 6, 10 and 12.

Tables 4 and 5 detail patent transactions that do not include the acquisition of a corporation or business unit, and where the assignee is a licensing entity. Of note, licensing entities are acquiring twice as many semiconductor patents (3,224) as operating companies (1,637), when the transaction does not include the acquisition of corporate operations. The average number of assignor semiconductor patents per assignee is 36, which is very close to the average of 38 for patent transactions.

There are 11 licensing entities that meet our definition of frequent buyers among licensing entities.

It is unclear from the reassignments whether the companies listed as assignors were directly selling to licensing entities or if the patents were transacted through third parties. To determine this, the full sequence of reassignments would need to be studied.

Among defensive aggregators, activity was observed for RPX and Allied Security Trust – although to a lesser degree.

Event-driven transactions

Patent transactions with a large quantity of semiconductor patents are less common, as we have discovered. However, the ones we found through the course of our study each told a story and offered a glimpse into the operational strategies of each buyer organisation.

Here, we provide a few examples of the different types of stories the transactions told.

Fujitsu – buying to support activity in a new market space

Fujitsu acquired a number of patents in the Internet of Things (IoT) space between 2013 and 2015, buying in relatively high numbers from organisations including SuVolta, DSM and Intel. These acquisitions served to support Fujitsu’s business goals of pushing into the IoT space.

Intel – buying to expand existing market focus

Intel acquired numerous telecommunications technologies patents from VIA Technologies in 2015. Initially, Intel had been considering an outright acquisition of VIA, but opted instead for a patent transaction, presumably in the interests of creating low-cost mobile equipment.

Samsung – buying to support long-term business goals

In 2016, Samsung reached an agreement to buy QD Vision’s intellectual property for approximately $70 million. This acquisition supported Samsung’s efforts to implement increasingly advanced quantum dot technology to compete with OLED televisions.

BOE – buying to protect business interests

In 2015 and 2016, China’s BOE acquired hundreds of patents from various organisations related to LEDs, liquid crystal displays and various display technologies. According to a story on the IAM blog in June 2016, this purchasing activity was conducted under the leadership of Bin Sun, who is now general counsel with Xiaomi as part of its IP litigation team. This indicates that BOE’s leadership at the time was focused on strengthening its patent portfolio, including through the purchase of assets from external organisations.

Activity in major markets

Mobile

In the mobile space, we found that mobile smartphone companies are buying semiconductor patents, as shown in Table 6. Circuit patents outweighed process patents by two to one. In addition, patent purchases have steadily declined in the last five years.

According to the International Data Corporation, the top five smartphone vendors per market share in the first quarter of 2017 were Samsung, Apple, Huawei, OPPO and vivo. Of those five, we observed that OPPO and vivo did not purchase any patents that were included in our study dataset. Apple and Huawei, as fabless original equipment manufacturers (OEM), appeared to focus on buying companies, while of the patents that Apple bought within the five-year dataset, 81% were associated with acquisitions. Samsung, as an OEM that does manufacture semiconductors, is more active in patent purchasing, with 61% of its transactions unrelated to corporate events.

These companies make a diverse range of products, so the semiconductor acquisition may apply to all the electronic products they sell, including smartphones. Examples of this include the following:

• BlackBerry acquired Rockstar patents, Paratek patents on RF technology and QNX patents;
• Lenovo acquired IBM patents for an alliance on making PCs and bought out a joint venture with NEC;
• Samsung acquired patents from QD Vision, Creator Technology, SB LiMotive, Grandis, Polymer Vision, IBM and 13 other companies;
• Google acquired Motorola Mobility;
• Motorola claimed some patents of Freescale and General Instruments and also acquired Terayon Communications and RadioFrame Networks;
• Sony acquired semiconductor patents from Japan Display, Epson, Intel, IBM and JOLED;
• Apple acquired patents from LuxVue Technology, Authentec, STMicroelectronics, Primesense, Harris and five others; and
• Nokia transacted semiconductor patents with Siemens, Eden Rock Communications, Xieon Networks and Cellular Communications.

Automotive

It is not so much that there are no automotive-specific semiconductor patents, but that so much existing technology is now being applied to the automotive industry. What sets auto technology patents apart from technology patents is less to do with the technology itself and more to do with regulatory standards and certifications.

In the automotive sector, existing semiconductor chips are tuned specifically for automotive applications, such as allowing for a wider temperature range or more temperature cycling. ‘Existing’ is the key word here – semiconductor technology being applied to automobiles is often of an older vintage.

When we look at patent transaction activity in the automotive sector, there are few to no OEMs buying semiconductor patents. A study of semiconductor patenting trends in this industry space would necessitate in-depth analysis of corporate mash-ups between automotive and high-tech organisations.

True innovation in the automotive sector at this point appears to be focused on electronic sub-systems and software-controlled functions.

IoT

Four key components of IoT are: things, gateways, internet and analytics. Semiconductors fall within the category of things. Given the somewhat nebulous state of the IoT sector, the term appears to apply to anything that is connected to anything else. An analysis of semiconductor transactions in this space is thus extremely complicated and could include a virtually unlimited dataset.

Here, semiconductor technology is the wrong place to look when searching for the focus of this industry; innovation appears to come rather from software, security and networking in this field. Existing products are being used in a wider array of applications as this relatively new market continues to grow.

There is innovation in semiconductors particularly for sensors and highly integrated systems on a chip (SoC), with a variety of low-power operations and types of wireless backhaul. The semiconductor products being marketed that are specific to IoT include Bluetooth SoC, NarrowBand SoC, modules, modems, sensors and battery chargers.

Table 7 illustrates semiconductor patent assignee activity for companies that market products for the IoT. Some companies were not found in our dataset, including RDA, RF digital, HiSilicon (Neul), Texas Instruments, Microchip, Micronas, Altair, Sequans and Nordic.

On balance

Although semiconductor patents continue to change hands, 83% of transactions are driven by corporate event reassignments, no doubt fuelled by the consolidation of tech giants that has been taking place over the last five years. The balance of semiconductor patent transactions falls into four other types:

• There are about a dozen companies that are either frequently selling or buying semiconductor patents, indicating that they actively participate in strengthening or monetisation programmes.
• Licensing entities are very active, acquiring twice as many semiconductor patents as operating companies. They are acquiring patents from the full range of process and circuit technologies, with some increased activity in memory patents. This aligns with announcements from numerous licensing entities that they are making active investments and granting licences in semiconductor technologies.
• Event-driven semiconductor patent transactions are also holding steady, with about 30 transactions identified that were larger than the average semiconductor patent transaction size of five patents. These patents also encompass the full range of semiconductor technologies. These acquisitions can provide technologies that help companies to improve their product offerings in new lines of business, to provide patents for licensing these technologies and to pursue counter-assertion in the event of being put on notice of infringement by third parties.
• Semiconductor patent transactions are active in major and emerging markets:
  • Semiconductor patent acquisition in the mobile market has favoured circuit over process technologies by a margin of two to one, which aligns with mobile products delivering a broad range of new functions and features in existing high-volume process technologies. It does appear that the mobile patent wars are slowing down, as the volume of semiconductor patent transactions has been steadily falling over the last five years.
  • Automotive semiconductor patent transaction activity appears light, which may be in line with the approach in automotive companies of repurposing a variety of existing semiconductors in automotive applications that are hardened under wider temperature and reliability requirements.
  • Finally, IoT companies have been acquiring both process and circuit patents for several years, which aligns with the need for more diverse and integrated sensors which require low levels of power to operate.