Selling Patents

InterDigital just sold 1,700 worldwide patents and pending applications to Intel for $375 million in cash –  boosting Intel’s mobile circuitry patent portfolio.  InterDigital was able to transform a substantial number of its fairly non-liquid assets (patents) into cash.  On the purchase, InterDigital’s stock price immediately jumped about 28%.  The price change represents an increase of Company valuation of around $260 million.  One way to look at this price jump is as a reflection in the ongoing difficulty in monetizing patent rights.  Before the deal, investors seemingly valued the patents at only 1/3 of their eventual cash value — largely because it would have been much too speculative to predict that the patents could actually be sold for the price asked.

Patent2011072

The chart above shows InterDigital’s stock price jump immediately following the deal’s announcement. The chart below looks at InterDigital stock prices for the past six months. The sale date and price jump is seen at the far right.  As is obvious, the sale does not make-up for the huge loss in valuation that the company has seen over the past few months. 

Patent2011073

Although every story is unique, it is reflective upon a fact that business leaders know — although patents are valuable and useful assets, it is exceedingly difficult to rely on patents as a company’s primary revenue source. Kodak knows this well.  The company is in bankruptcy and is in the process of selling its final few assets — mainly intellectual property rights that it could not previously fully monetize during.

 

 

33 thoughts on “Selling Patents

  1. actually the above article makes a lot of sense.

    I looked at the above article along with patent transaction information from Relecura [www.relecura.com) and it made a lot of sense to me.

    really good job with the article

  2. Most patents are worthless – it is mind boggling that people still think they need to buy most patents. Unbelievable.

  3. Why are you using a fresh sockpuppet?

    Is the appropriate reply, “WHen have you stopped beating your wife?” ?

  4. Why are you quoting this suckie in response to comments on this thread?

    Why are you using a fresh sockpuppet? Are you a summer associate with a new laptop?

  5. IANAE, back during the .dot com boom, Seagate owned stock in .dot com companies had a market value of $20billion; but at the same time Seagate’s own stock was publicly traded a company value of $5billion. (Approx.)

    Not surprisingly, stockholders in the know and the board were nonplussed. Raider could have bought the company at $5billion and instantly made a $15billion profit.

    Guess what the board did?

    Regardless, I agree with the OP that the asset value of patent portfolio is not easily judged by the market, leading to a significant under-valuation, at times, of companies who may have significant patent assets. Raiders, as BJ suggested, who know the real value of the patents could have bought the company for a lot less that the patents were actually worth, which is why BJ said the company was in play. (Vulture capitalism?)

    Given the current state of the patent wars, it would be valuable to know just what companies have valuable patents that other companies may want to acquire. Buying a few shares in these may be a good investment.

  6. Why are you quoting this suckie in response to comments on this thread?

    Your lack of control is emblematic.

  7. What the H are you babbling about?

    I’m just quoting suckie. Only suckie knows what that statement means. Whatever it means, though, suckie was mighty proud of it.

  8. The premise of the caveat that invented was to cover the new found need not to conflate based on timing.

    What the H are you babbling about?

  9. suckie the one in your head

    You’d be better off worrying about your own head, suckie. In that regard, be sure that your nurse sees your most recent bathroom wall scribblings the next time she checks in on you, i.e., :

    The premise of the caveat that invented was to cover the new found need not to conflate based on timing.

    Yikes.

  10. simple questions said: How is obtaining $220,000 per patent in any way a bad business deal? That’s like a typical ROI of 1100%. Can you do do better? Can you even come close?

    It’s not a bad deal, but it seems low in light of recent benchmarks at several times that rate in the wireless space. I actually provided some of these benchmarks and laid out the case in a post earlier this week that IDCC very likely sold non-essential IP to Intel, providing a helpful data point when they get ready to sell or license their LTE essential IP. See link to seekingalpha.com

    That’s not to say the patents are worthless, just that they don’t provide max value in IDCC’s IP licensing model–and, yes, IDCC is primarily an IP licensing entity. Intel wants to increase their presence in the mobile technologies, but they’ll need to beef up their patent numbers for the inevitable cross-licensing discussions down the road …

  11. Once again, LB, you are wrong.

    You need to be both direct and correct.

    MM is almost guaranteed to be incorrect. If you were at all perceptive, you would recognize that.

  12. BJ is not being churlish.

    BJ is being correct. You might want to take a lesson that being direct and being correct is far better than being wrong and “subtle.”

    What’s even worse than using a big word incorrectly? Trying to cover your A in defending the incorrect use and failing miserably.

    Stop now to avoid further embarrassing yourself.

    And by the way, when you expend the effort to use fancy words, and you are wrong in their use, you really look like a pretentious pr1ck.

  13. I don’t think you’re understanding me at all.

    Great. Since we have established that my perceptive powers are at least better than yours, we need to add to your deficiencies the inability to articulate your position.

    The lead in of “If a fungible asset is sold by a public traded company…” followed by the admission of “I’m completely aware that a patent is not a fungible asset” is evidence of where the problem lies.

    I suggest you spend less time looking up words like “contumacious” and more time crafting a message that could be easily understood.

    I do not think the word “subtle” is appropriate. A more appropriate word is “wrong.”

  14. Re the reference to Kodak patents above, Kodak’s sale of its digital camera patents is indeed vital in its bankruptcy proceeding. However, that is being seriously obstructed by Apple claiming to own ten of those patents, with no specific public explanation of how that could be true. New N.D. N.Y. D.C. litigation over that issue is not going to resolve that Apple allegation in time, thus leaving an undefined dark cloud over the pending August Kodak patents auction, or delaying it, to the serious detriment of the bankruptcy proceeding, all those owed money by Kodak, and Kodak’s ongoing businesses.
    I do not understand why the bankruptcy judge could not at least require Apple to submit for public release in, say, not more than 20 days, a 10 page detailed summary of the alleged basis of its alleged ownership claim, with attached copies of all allegely relevant Apple-Kodak contracts with the provisions thereof allegedly providing Apple with ownership clearly marked, plus any alleged prior Apple invention documentation if that is being claimed. Kodak would then have time to respond publicly if it wants to.
    Thus, potential Kodak patent purchasers could draw their own informed conclusions as to the likely validity, or frivolity, of Appleā€™s claims of sole or joint ownership of [or license to] those ten patents, and these patents could get a rational auction value.

  15. the market movement tells us that IDCC management made a great deal.

    It might be telling us that people who value public companies (i.e. “the market”) aren’t as good at evaluating thousands of individual complicated assets as someone who is ready to shell out a 3/8 of a billion specifically for those assets. Especially when people have a negative view of the company generally.

    Remember when everybody suddenly realized that MCD owned a bunch of prime real estate, and their stock went up because nobody had realized the company was worth that much? This is nothing more than the market not having a very good idea of all the individual properties the company actually owns.

  16. As the return of 1100% does not include any profits on products or licensing revenue from the patents, the actual return may be substantially greater and if you insist on using this outlier to draw any conclusions between patents and business models, the EXACT opposite of its main (unimplied) point would be reached: it is risky (and downright foolish) NOT to use patents as a business model.

    I don’t think you’re understanding me at all. Selling the patents was apparently a great move. But try telling those saps who paid $75/share for IDCC last year how awesome IDCC’s business model is, and how safe their investment was.

    I’m not trashing patents at all, and I’m completely indifferent to IDCC’s business model in particular. However, this event is interesting because it demonstrates either that Intel paid way too much or that this large pile of patents is worth much more in Intel’s hands than in IDCC’s. But perhaps that is too subtle for the “all patents are awesome!” crowd.

  17. Why is this risky?

    That’s a great question – I’d love to hear your take on it. As Dennis suggests, IDCC and Kodak

    Who says the business model was based entirely or primarily on monetization of patents?

    I do, at least as regards IDCC. Do you disagree? Would you like me to collect data on IDCC’s revenues from licensing versus sales of products and services?

    How is obtaining $220,000 per patent in any way a bad business deal?

    I didn’t say it was. In fact, I said the opposite – the market movement tells us that IDCC management made a great deal.

    Or are you just being contumacious?

    That’s a great word, isn’t it?

  18. Judging by only your comment, it is not a difficult task to be more perceptive than you.

    As the return of 1100% does not include any profits on products or licensing revenue from the patents, the actual return may be substantially greater and if you insist on using this outlier to draw any conclusions between patents and business models, the EXACT opposite of its main (unimplied) point would be reached: it is risky (and downright foolish) NOT to use patents as a business model.

  19. I thought that the story did a nice job of illustrating its main (unimplied) point – a corporate business model based entirely or primarily on the monetization of patents is pretty risky.

    Why is this risky?

    Who says the business model was based entirely or primarily on monetization of patents?

    How is obtaining $220,000 per patent in any way a bad business deal? That’s like a typical ROI of 1100%. Can you do do better? Can you even come close?

    Or are you just being contumacious?

  20. I should add that I’m completely aware that a patent is not a fungible asset. That is precisely why there is an opportunity for the sale of this sort of asset to have such a significant impact on company value. IDCC’s management apparently made a very good move here.

  21. What is not so easily corrected is the implied message in the story that patents are not really worth it.

    You must be a more perceptive reader than I, as I did not get that implied message at all. Instead, I read that the market has just told us that 1700 of Interdigital’s patents are worth $220K each, at least to Intel.

    I thought that the story did a nice job of illustrating its main (unimplied) point – a corporate business model based entirely or primarily on the monetization of patents is pretty risky.

    A better and more immediate story would be noting that $115 million in cash value evaporated immediately (value after cash infusion less actual cash infusion).

    I think this is a misunderstanding of the situation. There was no evaporation of $115 million in cash value. If a fungible asset is sold by a public traded company at fair market value, there should be no change in the market value of the company. Thus, it is a fallacy to compare the change in market cap with the asset sale price. Here, the increase in market value tells us that the market thinks IDCC is much better off with the cash than with the assets they just unloaded.

    In other words, the market apparently agrees with IDCC’s management that the patents are worth more in Intel’s hands than in IDCC’s.

  22. Stan,

    That is easily corrected.

    What is not so easily corrected is the implied message in the story that patents are not really worth it.

    It is a bit of a fallacy to compare the sale to the company’s historical drop in valuation and attempt any type of comparision to the value of the patents.

    Stock prices alone simply do not correlate with patent valuation.

    A better and more immediate story would be noting that $115 million in cash value evaporated immediately (value after cash infusion less actual cash infusion).

    This red flag should immediately inform anyone with an ounce of financial savvy that the companmy was in play, and anyone really interested in an objective view of patent valuation would (and should) recognize that this case is an outlier and should not be used in a story on patent valuation.

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