The Increasing Value of Knowledge Currency

By General Patent Corporation

In just the last few years, patents have gone from sleepy assets that many businesses did not even record on their balance sheets, to hot properties. Patents have truly become the “knowledge currency” of the Information Age. And the market – as it always does – has made things right by reflecting the true value of intellectual property.

So it is no coincidence that we have seen some pretty expensive patent sales and auctions in the past few years. “Rockstar Bidco” (a consortium formed by Apple, EMC, Ericsson, Microsoft, RIM and Sony) grabbed everyone’s attention last summer with its purchase of Nortel Networks’ patent portfolio for $4.5 billion.

But it wasn’t the only pricey patent deal in recent memory. Consider these other patent deals in the past and in the making:

• This past March, Cisco agreed to buy NDS Group Ltd. for about $5 billion – largely for its patents. The deal brings Cisco patents on software used in next-generation video services.
• Research in Motion (RIM) may soon be up for sale as BlackBerrys go further and further out of style. Bloomberg reports that RIM is hiring an investment counselor, and Amazon is reportedly interested in the RIM patents, according to BusinessWeek. What would make RIM’s IP attractive to buyers? Though BlackBerrys are the company’s core business, RIM’s patent portfolio covers a variety of wireless technology and messaging standards – and has been estimated at anywhere from $1 billion to as much as $3-4 billion.
• And, of course, Microsoft’s recent “patent flip” in which it purchased 925 patents from AOL for $1 billion, kept the ones it needed, and sold 650 of those patents to Facebook for $550 million (but with Microsoft retaining a license to use the patents it sold) made patent history.

What do these deals have in common? The hottest patents (that sell for the most money) are those from established companies that pioneered technologies such as e-commerce or wireless technology. R&D departments are hard-pressed to produce inventions that are truly ground-breaking, because even the most cutting-edge technology builds on what came before.

So the company with the most of these “standards” patents has the strongest defense against competitors and the greatest ability to expand its business. And many established companies are taking a look at their “old” patents to see which may be more valuable because they cover industry standards.

By the numbers
The amounts of money changing hands for patent portfolios are certainly impressive, but it might just be even more impressive when you consider how much each patent in those portfolios is worth (on average). Just look at the per-patent average in a sampling of big patent portfolio sales:

• In August 2010, Facebook acquired 7 social networking patents from Friendster for $40 million; the average price per patent was $5,714,286.
• S3’s purchase of 235 HTC graphics patents in July 2011 for $300 million meant that the patents averaged out to $1,276,596 apiece.
• Microsoft’s purchase of 925 AOL patents (mentioned above) for $1 billion meant an average price of $1,189,189 per patent.
• Microsoft’s subsequent sale of 650 of those AOL patents to Facebook for $550 million brought Microsoft an average of $846,154 per patent.
• Kodak’s pending sale of 1,100 patents on digital imaging, at a price of $2 billion for the portfolio, would bring the bankrupt company $1,818,182 per patent.

Of course, not all patents are equal in quality or value – even within the same portfolio. Some are worth more and some less, but there is clearly strength in numbers. And a strong patent portfolio can mean the difference between expansion and stagnation, competitive advantage and constant worry about patent lawsuits.

Passing the torch (for lots of cash)
The older technology companies that invested in R&D over the past two decades, and secured patents for the inventions – or more likely, improvements to prior inventions – they developed, find themselves sitting on assets that are worth far more than they ever expected them to be. In some cases, like the Nortel Networks patent sale, the company’s IP assets turned out to be worth more than the company’s traditional “hard” assets.

Sitting at the other end of the continuum are the cash-rich, nouveau riche high-tech companies – like Google and Facebook – that did not invest in R&D over the last few decades. So they now find themselves in need of IP assets, assets that only money – and, as we have learned, a lot of money – can buy.

[This post originally appeared at the General Patent Corporation website.]