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IP, IP Asset, Patent

Patent Plays In Focus At Seeking Alpha: InterDigital, Nokia, Augme And Others

Some readers may already have noticed a recent series of articles posted to the investor-focused website Seeking Alpha focusing on companies that either currently, formerly, or prospectively will, derive most of their revenue from patent monetization.  (In fact, the first series of articles includes at least one of each.)

These so-called “patent plays” form an increasingly larger sector of the market and, in some cases, present a viable way for people to invest in valuable intellectual property.  Gametime IP will continue to report on significant events in the patent monetization, licensing and general IP transactional space, but the Seeking Alpha series of articles will focus specifically on IP issues relevant to patent play stakeholders and investors in general.  Generally, these articles will also be summarized on Gametime IP.

Judge Posner spectacularly destroyed the Apple v Motorola patent claims, leading pundits around the world to pontificate over how His Honor’s treatment of patent litigants influences future behavior and results.  The next natural evolution will be the forthcoming major patent plays, of which Nokia may be the most valuable.  In the article, I explain why Nokia’s strategy is largely unaffected and remains one of the more interesting patent monetization efforts to monitor:

NOK remains open to arrangements similar to the one reached with Microsoft and Mosaid, in which NOK receives a significant share of the purchaser’s licensing revenue. While technically patent sales, these types of deals should be thought of as more of a licensing play, with their potential to bring in more substantial revenue, albeit over a longer time period.

Thus, while Posner’s ruling may temporarily chill the market for all-cash patent sales, NOK’s strategy should remain unaffected as it has already demonstrated an ability to license patents directly, as well as by identifying partners like Mosaid to do the licensing work and share the revenue.

InterDigital’s $375 M sale of 1700 patents to Intel grabbed headlines, many speculating on who got the better deal.  In reality, the transaction was most likely a win-win for both sides, with InterDigital establishing a strong datapoint for patents with low licensing value, and Intel beefing up for potential cross-licensing.

Noticeably absent from the description of the patents sold to Intel is the word “essential.”

Historically, companies have not been shy to boast about the sale or purchase of LTE essential patents  …

If IDCC managed to sell 1,700 non-essential 3G, LTE and 802.11 related patents for $225,000 each, then it might well have commanded a premium for patents that carry little licensing value – IDCC’s other revenue angle. For its part, Intel might still value the sheer volume of patents above their true income potential simply to beef up their weak IP holdings relevant to mobile technologies.

Far too many companies view patents as an afterthought.  Cases directly on point include Nortel and Silicon Graphics.  Kodak soon joins their ranks.  LML Payment Systems took a different approach, leveraging their IP to bridge the gap while a new payment processing business took root.  With patents expiring next year, and their operating business growing at 30% per year, the portfolio valiantly served the company’s interests.  LML managed to stay out of debt and keep their balance sheet healthy while growing their customer base.  Is it enough to propose a new bankruptcy process called Chapter 11′ and temporarily reorganize a distressed company to acquire and monetize patents?

On average, LMLP earned $11.5 M annually during its four year IP monetization campaign, which was more than LMLP earned from its transaction payment processing business segment in fiscal years 2009 and 2010. …

On the flip side, patent monetization revenues tend to be erratic and unpredictable, and LMLP proved no exception. The company earned most of its $46 M in fiscal 2011, reporting $32 M compared with $16 M in fiscal 2012. …

Overall, LMLP’s patent monetization substantially impacted its balance sheet, allowing it to grow from less than $40 M to over $60 M in the past four years. Significantly, current assets grew from $14 M to over $42 M during a time when cost of revenue for the transaction processing business consumed well over half of the revenue earned. Cost of revenue for patent monetization, meanwhile, consumed only about a third of relevant revenue.

Trading under the new symbol PTNT, Internet Patents converted from an operating company in the insurance industry to a pure patent play this past December.  While their portfolio includes only a meager six patents, at least one reaches technologies used across a large number of industries.

While many of PTNT’s patents, by their own description, relate to the insurance industry – hardly a surprise given the company’s history-one of PTNT’s more interesting patents, US Patent No. 6,898,597, exhibits this horizontally oriented characteristic, broadly describing a process for keeping a network access log. The patented invention, filed in 1999, describes:

An event logging system for capturing event information associated with activity occurring in an application running on a server computer system configured to provide information to at least one client computer system, the event logging system comprising: an event identification routine operable to identify the occurrence of an event during the execution of the application and to transmit context information associated with the event; a database operable to receive and store the context information, wherein the database is a relational database utilizing a structured query language (SQL) and a database interface operable to transmit and receive the context information.



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