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IP, IP Asset, Patent

How Do The Nortel Patent Auction Numbers Measure Up? A Look At Comparable IP Monetization Efforts

A lot of numbers are being thrown around in reaction to the Nortel auction, but the one that seems to be the most interesting is $750,000 per patent.  Arriving at this number includes entertaining the belief that $4.5 Billion was spent to acquire 6000 assets.  However, as I previously observed, look at patents currently in force drops this number down to 2000, which is the number similarly reported by IAM.  At 2000 assets, the price per patent skyrockets to $2.25 MM each. If you would assume that the 1000 or so patents with at least 10 years of term remaining were the primary drivers of the purchase, then double that amount to $4.5 MM each.

To put these numbers in perspective, consider Intellectual Ventures’ patent collection.  At the time I wrote about IV’s first lawsuits in its own name, they had amassed 30,000 patent assets and deployed a reported $1.2 B in the process.  In other words, a mere of $40,000 per patent.  While their reported holdings have since increased to about 35,000 assets, and it’s always possible that the firm has deployed significantly more capital that has been reported, to match even the low end of the Nortel price per patent, IV would have had to have shelled out more than $26 Billion. I’ve personally never heard a number higher than $2 Billion regarding the amount paid by IV for its portfolio, which would put the price per asset at less than $60,000.

The Lemelson licensing campaign generated $1.5 B for a 500+ patent portfolio for a patenting effort that spanned half a century, with the consummate licensing effort occupying the latter few decades.  While these figures alone represent a return of about $3M per patent, a source close to the campaign confirmed that, on the high end, less than 10% of the portfolio (well under 50 assets) were actually asserted in letter-writing and litigation efforts.  Considering only 50 patents as actively contributing to the campaign, the return could be considered to exceed $30M per patent.

It’s unlikely that IV would ever come within shouting distance of that mark, but that isn’t really IV’s plan in the first place.  The primary function of having a 35,000+ portfolio (including about 3500 internally created inventions) is obscurity.

Normally, auctioning off a portfolio for cash results in a significant compromise from full commercialization value since the buyer is assuming the risks and costs associated with IP deployment.  Walker Digital provides a good example. In 2010, the research firm would apparently have been satisfied with a return of less than $300,000 per patent for its 500+ patent portfolio, based on their stated reserve of $140 M.  Of course, since the auction didn’t pan out as planned, Walker has borne the costs of licensing its portfolio while aggressively litigating and selling off other assets.  After receiving a total of $20.5 M in bids for freedom to operate under a small subset of the portfolio, including an offer of $6 M for limited rights to a single patent, it’s safe to say Walker expects far more of a return per patent.

So how did Nortel manage to get a price that looks to be much closer to commercialization value than to true auction value?  For one thing, the auction created the situation that an auction is normally expected to provide, which is to pit buyers in a competition to draw the maximum personal value the asset holds.  In addition, the desire by incumbent industry participants like Apple and Microsoft to keep Google on the outside looking in clearly worked to Nortel’s benefit.  Meanwhile, Google seemed resigned to its fate (throwing out ridiculous bids with no obvious benefit), and instead switched its efforts to force the bidding conglomerate to view the patent auction purely as an expense rather than an investment.

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