Impact of both the Nortel patent portfolio sale and the Google acquisition will start to play out this year
by Thomas Filarski, President, Licensing Executives Society (U.S.A. and Canada), Inc.
Each year when the calendar turns over, I reflect on the past and wonder what lies ahead. Last year, intellectual property (IP) transactions moved into sharper focus for business and government making one point clear: IP means value. Here are some noteworthy events from 2011 and what’s ahead for 2012 in licensing, technology transfer, and the business development of intellectual property.
The impact of both the Nortel patent portfolio sale and the Google acquisition will start to play out in 2012. In June 2011, bankrupt Nortel sold its information and communication technology patent collection at auction for $4.5 billion. The value far exceeded the $900 million Google originally guaranteed to pay under a stalking horse arrangement. This deal is reportedly seen as the largest ratio (5:1) of final price to original stalking horse bid in a bankruptcy asset auction.
This historic auction yielded an intriguing split of company value. While its businesses, which included CDMA/LTE networks, Enterprise Solutions, and Ethernet Works, sold collectively for greater than $3 billion, the company’s patent portfolio sold for $4.5 billion—greater than 60% of the total value.
Earlier, in January 2011, Motorola Mobility stockholder Carl Ichan made public statements signaling a potential monetization of the company’s portfolio, foreshadowing another watershed event in the IP marketplace. Shortly after losing its bid for Nortel to an Apple-led group known as “Rockstar,” Google snapped up Motorola Mobility for $12.5 billion. This figure is said to have represented at least a 60% premium over market capitalization and signals that Google paid the surplus for Motorola Mobility’s patents.
While the deals are young, 2012 may tell whether the sums paid truly reflect the value of the patents in these companies, and whether these transactions will set the course for assessing the proportionate value of patents and IP in such technology companies moving forward.
In the pharmaceutical sector, we will see the edge of the “patent cliff,” as sales of branded drugs plummet when the patents supporting blockbuster medicines begin to expire in 2012. As generic competition forces prices and margins downward, branded companies should be looking for alternative means to maximize their capital. In 2012, look out for creative in-licensing and partnering deals, the continued rise of universities in discovery deals, and possibly business restructuring. For those following legislation, the recently passed America Invents Act, the most significant change to the U.S. patent system in nearly sixty years, will bring new provisions that curtail long-established ‘first to invent’ doctrines, institute post-grant opposition proceedings, and create prior user defenses. As these laws take hold in 2012, pay close attention to their impact on the value and the transferability of licensable patents and related technology.
Also, keep an eye on the Federal Trade Commission (FTC) and the United States courts. Last March, the FTC reported that increasing activity by patent assertion entities in the information technology industry amplified concerns about the effects of ex post patent transaction in innovation and competition. The actions of such firms, some of which are also known as patent trolls or non–practicing entities, have become implanted firmly in the minds of many transfer technology professionals. These companies will continue to evolve with new business models and interesting applications in 2012.
Turning patent aggregation into monetary value, RPX Corp. and Acacia Research Corp. successfully completed stock offerings to the general public in 2011. In March 2011, Acacia went public and attained a market capitalization of nearly $1.4 billion. RPX launched its initial public offering in May 2011 and recorded a market capitalization of $700 million. Regardless of their offensive or defensive nature, these companies have shown that an apt collection of patents generates wealth.
Finally, there is IPXI, which announced that in 2012 it will launch an IP Exchange on the Chicago Board of Options Exchange. IPXI recently said it completed a $10 million funding round, which will allow it to issue the first Unit License Right™ Contract. A ULR Contract will be an exchange-traded, non-exclusive license right product with standard terms that will be offered at a market-based price. According to IPXI, the owner of a ULR Contract will be granted the right to use the underlying technology for a pre-established number of instances and may trade it on a secondary market maintained by IPXI. These new and potentially profitable ways to extract value from intellectual property assets should make for an interesting 2012.
These are stirring times for the business of intellectual property. As patents and related intellectual property continue to impact industry, technology transfer, and the financial marketplace, I invite you to participate in the discussion and debate that will occur in the many webinars, education programs, and meetings that LES (USA & Canada) will offer in 2012.
This article originally appeared in the February 2012 issue of Viewpoints, the printed quarterly newsletter for LES (USA & Canada) members.
