Intellectual Property

Value Creation In IP

At least one nonpracticing entity has generated success by coming at the challenge of generating licensing revenue in a different way.

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intellectual property law

(Image via Getty)

Every so often, I get asked by a representative of one investment firm or another to give an overview of the patent litigation ecosystem. Lately, I have taken to describing to such audiences how patent litigation in the U.S. market has come to resemble a slice of pizza, albeit a slice where the sauce is both thinly spread and tastes a little weak. The dough and crust holding up the slice? More than ever, that is volume nuisance-value cases brought by prolific NPEs. That delicious buffalo mozzarella imported from Italy? Those are the high-value pharma cases, the occasional competitor cases, or the rare funded NPE case that makes it through the gauntlet that is the litigation funding diligence process. And the less-than-robust layer of sauce? Those are the smaller competitor cases, or the non-nuisance value NPE disputes. If you squint you can see them, but they are increasingly harder to come by in modern patent litigation. For a variety of reasons, led by the fact that such cases just don’t meet the damages threshold to justify funding, while also being too risky to self-fund in this age of IPR challenges and defendants emboldened to stretch cases to the breaking point before settling.

You may not agree that the pizza slice analogy works. But I think the above remains a pretty comprehensive and accurate picture of what the state of play is in the modern patent litigation realm. In a welcome twist, however, at least one nonpracticing entity has generated success by coming at the challenge of generating licensing revenue in a different way. I am speaking about IPValue, which made news in August for taking on a large (approximately 5,000) patent portfolio from Intel. That acquisition, which included Intel patents in a variety of technology areas, continues IPValue’s long-running history of major patent acquisitions from pedigreed operating companies. According to the company, IPValue owns and manages licensing for over 12,000 patents. A sizable portfolio, by any reckoning. (For disclosure purposes, I have introduced clients to IPValue in the past. I also had a welcome conversation with IPValue’s Executive VP, Partnerships and Acquisitions, Keith Wilson, in advance of this column, as well as the opportunity to review some prepared background material provided by the company.)

Indeed, IPValue’s approach in many ways mirrors the licensing approaches of the most successful IP owners, from Microsoft to Qualcomm and others — namely, to combine deep technical expertise with a large and varied pool of patents available for licensing. That is, of course, by design, helped along by IPValue’s healthy financial performance. As the Intel transaction demonstrates, operating companies with large patent portfolios who are interested in licensing — but perhaps not interested in running an active licensing operation — have come to view IPValue as a viable contributor to their licensing efforts. In fact, IPValue’s original assignments often took the form of acting as a licensing agent for large patent owners, as opposed to acquisition of the underlying assets as in the Intel transaction. Either way, IPValue’s recipe of being an option for large patent owners to work with has held up.

Yes, more than a handful of operating companies worked with NPEs of various sizes in order to add some punch to their licensing efforts. But standard operating company-NPE transactions tend to involve much fewer patents than the many thousands of patents Intel just transferred to IPValue, and for good reason, since many NPEs are most interested in generating licensing revenue using the litigation cudgel as a primary mechanism for beating leaves off the alleged infringer money tree. And there are only so many patents you can bring to bear in a litigation, even if your strategy involves filing multiple cases. Here again, IPValue goes about its business a bit differently. Not only has it demonstrated that it can and will take on large numbers of patents in a single transaction, but it has also publicly declared its preference for litigation as a licensing tactic of last resort. In fact, a recent IAM piece on the company points out that in over 20 years of operation, IPValue’s “entities have filed just 32 litigation actions since 2008.” (In contrast, there are some NPEs for whom 32 litigation filings represent an active month’s work.) For sure, IPValue has gone the litigation route on occasion, if only because there is often no other alternative when faced with an unwilling potential licensee. But so have the other major patent holders it models itself on, who sometimes find themselves even suing customers (e.g., Qualcomm v. Apple) in order to protect their licensing revenue stream.

For companies with large patent portfolios, it is easy to see the appeal of partnering with IPValue, particularly where there is an interest in divesting a large number of patents. By now, the company has shown that its business model can generate licensing revenue, even without following an expensive and uncertain litigation-first approach. More importantly, IPValue’s investment in building out its in-house technical team can be an important driver in terms of helping to unlock the full potential of a patent portfolio. So too is IPValue’s ability and willingness to invest heavily in third-party technical analysis of addressable products for licensing. It can be difficult at times for in-house IP counsel to develop a deep understanding of where the most valuable assets may reside in a given portfolio. Offloading those patents to IPValue, which will be very motivated to identify any potential bulwark assets, can therefore be an attractive alternative to going it alone. Moreover, as IPValue’s experience in working with potential licensees deepens, the potential value of IPValue’s relationships could also work in the original patent owner’s favor. If only because potential licensees often have a negative initial reaction when asked to license a robust patent portfolio for meaningful money — especially when that approach is made by a former or current competitor. Having a third party like IPValue make the approach could soften the blow and lead to more productive conversations early on.

Ultimately, it is important for all IP owners and their lawyers to maintain an understanding of what the varying licensing approaches are in the marketplace. While not everyone can become a Qualcomm, or even an IPValue, having an appreciation for the fact that there is no single answer to the challenging question of how to generate licensing revenue can be very useful. In a challenging environment for patent owners, present times included, being able to learn from other licensing models can spur creative thinking about how best to approach an existing licensing conundrum. In the meantime, we can expect that IPValue will continue to look for opportunities to demonstrate its unique approach to patent value creation.

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Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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