IPR Clubs – Pals in a pickle

 

 

 

 

 

  • The crazy dash to own patents to protect ones business has meant that the prices paid for patents these days have reached crazy levels.
  • One only has to look at Google’s $12.5bn acquisition of Motorola Mobility and the Rockstar consortium’s $4.5bn purchase of the Nortel assets from bankruptcy for evidence of this.
  • This has led to a rise in companies clubbing together to purchase patent portfolios as they become available.
  • The latest is the rumoured collaboration between Google and Apple to bid around $500m for the Kodak patent portfolio.
  • While this is great for keeping costs down and reducing the number of competitive bidders, it is fraught with problems.
  • The first question to answer is how the patents will be split up between the different consortium members.
  • Originally it was thought that the patents could stay in a pool and be drawn upon by the consortium members for protection when under assault by a third party.
  • But as Google found to its cost, one cannot assert a patent that has been borrowed. One has to own it outright.
  • This makes the whole “borrowing” idea moot.
  • So either the consortium members split up the patents between themselves or the patents remain in the consortium which then attempts to earn a return on them.
  • The problem with splitting up the patents is that everyone will want the same ones making the whole process tortuous and painful unless agreed in advance.
  • Earning a good return will also be tricky especially when taking into account the astronomical prices paid.  
  • In the case of Nortel, Apple took around 1,024 of the patents for itself leaving the rest within Rockstar to be managed for a return on investment.
  • Using the appallingly bad $ per patent measure one could conclude that Apple paid around $800m to own those patents leaving Rockstar with Rockstar with 4,000 patents in which its owners invested $3.7bn.
  • Rockstar needs now to earn a decent return on $3.7bn using 4,000 patents which looks like a tall order to me.
  • Many of these patents are already licensed and I doubt that they are generating significant revenues as this would have helped keep Nortel from bankruptcy.
  • Hence I struggle to see that Rockstar is going to generate especially good returns for its holders.
  • Likewise the rumoured consortium of Apple and Google bidding for the Kodak patents.
  • These two are arch-enemies who are indirectly fighting tooth and nail for the hearts and minds of mobile phone users.
  • How the patents will be divided up or a decent return made on them is very unclear and looks to me likely to end in tears.
  • Hence, the only advantage of these consortia is that it takes out of circulation a block of patents that could be acquired by a loose cannon and then used to hold everybody hostage. (as was the case with OMA DRM).
  • At the end of the day these look like very expensive insurance policies that time is likely to show were hugely overpriced.

 

RICHARD WINDSOR

Richard is founder, owner of research company, Radio Free Mobile. He has 16 years of experience working in sell side equity research. During his 11 year tenure at Nomura Securities, he focused on the equity coverage of the Global Technology sector.

Blog Comments

Great logical break down of the current situation. Love your work.

thanks man,.,, 🙂

[…] Taking out the patents that Apple took for itself, I have estimated that Rockstar has around 4,000 patents with a combined purchase price of $3.7bn. (see here) […]