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Intellectual Ventures, IP, IP Asset, Patent, Risk Mangement

The Intellectual Ventures / Nvidia Patent Partnership

Already widely reported this week, IPWireless sold 500+ patents and pending applications to a combination of Intellectual Ventures and Nvidia.  Intellectual Ventures knew about the IPWireless portfolio long before Nvidia approached it for help negotiating the acquisition.  Executive Vice President Loria Yeadon told me during a phone call, “We’ve known about the IPWireless portfolio for a while because we’re so present in the marketplace. … When the opportunity came to partner with Nvidia and buy this portfolio, we were ready to move.”

Nvidia, already an investor in IV’s Invention Investment Funds I and II, reached out to IV after IPWireless approached the GPU maker to offer the portfolio.  Last year, Nvidia acquired Icera, a fabless semiconductor designer of 3G/4G baseband processors.  IPWireless, originally founded in 1999, had a three-year head-start on invention and technology development, offering a patent portfolio likely to be generally foundational to Icera’s technology.

But lurking beneath the press releases and headlines, a mystery involving a 13-year company history, previous patent sales and a partnership with another operating company, and the involvement of a competing patent investment fund, something Yeadon says IV was well aware of.  Explaining the long transactional history of the IPWireless patents, Yeadon said “Frankly, there are lots of assets in the market where ownership of patents can change hands many times. That’s important because we see how liquid this market is, and that’s a good thing. It’s a market for invention.”  No one seems to be saying exactly how long IPWireless took to finally find a suitor for its portfolio, but the earliest likely date these assets hit the market would be sometime in 2010.

Founded in 1999, IPWireless’ initial investors poured a reported $235M into the company, only to sell to NextWave in 2007 for only $150M.  A year later, founders of IPWireless repurchased the company for only $2M and assumption of company debt.  In 2009, IPWireless completed a funding round for $15.5 M, but shortly afterward appears to have focused on leveraging its patent portfolio.  In April 2010, the company announced a joint R&D initiative with Sony, but unannounced was the assignment of a significant portion of its US patent portfolio to Sony at the same time.

Even more interesting, when Sony recorded an assignment of 33 patent assets from IPWireless, a different company, Wireless Technology Solutions LLC, recorded an assignment of 37 more IPWireless patents on the exact same day.  Wireless Technology Solutions is believed to be a holding company controlled by the patent investment fund Altitude Capital Partners.  Interestingly enough, ACP held onto the patents for just shy of 2 years, but in March assigned the patents back to IPWireless.  Based on the timeline, and comments from both Yeadon and Nvidia General Counsel David Shannon, IPWireless approached Nvidia at some point after re-acquiring the patents.

However, Yeadon’s previous comments, consistent with comments she made to Joff Wild at IAM Magazine, suggest that IV’s first contact with the portfolio would have come directly from ACP.  Ken Lustig confirmed to Joff already that the portfolio had been through a “competitive” sale process, but with the partnership with Nvidia arising in just a few weeks time, it is unlikely that the two companies participated in an auction.  Further, IV already raised billions in investment dollars, and billions more through licensing.  In all likelihood, if IV really coveted this portfolio for a long time, it could have purchased it long ago.  So why now, and why with Nvidia?

Intellectual Ventures invests in patents and inventions generally, which means any acquisition needs to carry with it a reasonable prospect extract future value.  In our conversation, Yeadon told me  “We’re focused on making good investments in technology that is relevant today, or for technology that won’t ripen for 3-5 years. We look at patents from a value perspective and from an investment perspective.”  With no licensing history, IV could have made the decision that the IPWireless portfolio, while valuable, did not represent a good investment at the offering price–in other words, the dollars needed to acquire and maintain the portfolio would exceed the likely dollars that could be extracted from it.

Of course, without a leak, no one outside of IV, Nvidia and IPWireless will ever know what the portfolio sold for.  General Dynamics acquired IPWireless’s parent company earlier this week for an undisclosed amount, in the process, reporting that IPWireless expects to generate $65-75M in revenues this year.  Obviously, there is no indication as to whether that figure includes the sale of its patents, and as a congomerate making $32B per year, there is virtually no chance that the amount generated from the IPWireless patent sale would be material to the company’s overall financials.

Meanwhile, why would Nvidia turn to Intellectual Ventures for help?  As a publicly traded company with $2.6B in total equity, surely Nvidia could afford to buy the portfolio on its own as well.  However, acquiring patents as an operating company is more of an expense than an investment.  Operating companies, generally, are in the business of making and selling products, not licensing their patents, so taking on a large patent portfolio represents a significant financial burden with little, direct, financial upside especially in the short-term.  By partnering with IV, Nvidia saves on bulk, acquiring less than the whole portfolio, offloads a lot of logistical expenses, and leaves open the possibility of sharing future licensing revenue.

Although she would not discuss the details of their arrangement with Nvidia, Yeadon did acknowledge that their licensing program distinguishes their joint acquisition offerings from those of IV’s competitors.  Specifically, she did acknowledge that IV is open to many different structures, including one “where a purchaser enjoys a share in future proceeds to assets we buy.”  Microsoft previously invested in patent acquisitions later off-loaded to licensing company MOSAID, leaving the software company with freedom to operate and a share of any licensing revenue MOSAID generates.  Asked whether this would become a trend, Yeadon agreed, “In this market, its common for companies to realize some benefit long after a transaction closes.”

Even more importantly for Nvidia, however, Intellectual Ventures is most likely the largest patent investment firm in the world (as measured by total investment) and is among the most aggressive.  Consider the message Nvidia sends to the rest of the world when it partners up with the IV to acquire patent rights in a technology space it only entered a year ago.  Imagine, if you will, the proverbial ‘nerd’ walking, chest out, through a school-yard ‘bully’ congregation, with his newly hired bodyguards at his side, daring one of them to try to steal his lunch money.  Qualcomm? Broadcom? Does anyone want to take their shot?

That’s not to say Nvidia is invulnerable. Everyone has weaknesses.  But Nvidia’s moves signals to the market that ‘low-hanging fruit’ hangs elsewhere.

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