Tuesday, November 13, 2007

A New Era of IP: Looking at Emerging Business Models in IP

It has become incresingly clear over the last couple of years that the "old economy" model for monetizing and managing IP assets has matured into a more robust model. Since the early 90's, only a select group of large patent holders controlled the majority of IP rights, leaving smaller players with little recourse in establishing and protecting innovative IP rights.

According to Raymond Millien (PCT Capital LLC), and Ron Laurie (Inflexion Point Strategy LLC), we are now living in an era of "IP for the masses"where the IP marketplace operates according to the Golden Rule -- those with the gold (i.e., IP rights) can now make the rules. This new era is characterized by the rise of “market-maker” intermediaries who seek to make IP a liquid asset class and, of course, profit from it. In a recent paper presented at the Sonoma Conference last month, Millen and Laurie take a look at these intermediaries:

Patent Licensing and Enforcement Companies (PLECs) - (Acacia Research, Lemelson Foundation, LPL) These are entities that own one or more patent portfolios, attempt to license them through targeted letter-writing campaigns, and then file patent infringement suits against those letter recipients who refuse to enter into non-exclusive licenses. Those that practice this business model are often called (rightly or wrongly) “patent trolls.”

Institutional Patent Aggregators/IP Acquisition Funds - (Coller IP Capital, Intellectual Ventures) These are entities that operate in a sort of private equity fashion. That is, they typically operate as general partners of a limited partnership and raise money either from large technology companies or from the capital markers (institutional investors (and sometimes high-net-worth individuals). The investors are promised above average ROI from selective, targeted or large-scale patent purchases with the goal of instituting licensing programs and/or employing various arbitrage strategies.

IP/Technology Development Companies - (AmberWave, InterDigital, MOSAID, Qualcomm, Rambus, Tessera) These are entities that engage in R&D activities and produce IP (including both patents and knowhow) much like traditional operating companies; however, the developed technology is not used to manufacture products in the form of physical goods. Rather, the IP associated with the technology is licensed by these entities to one or more operating companies so that the operating company may bring products and services employing the technology and IP to the marketplace.

Licensing Agents - (General Patent Corp., IPValue, ThinkFire) These are entities that function as intermediaries by attempting to assist patent owners in finding licensees. Entities that function under this business model often call themselves “IP advisory,” “IP management” or “technology transfer” firms. While the amount, quality and depth of services vary, to some degree in shape or form, they all earn retainer and/or success fees by assisting patent owners find licensees.

Litigation Finance/Investment Firms - (Altitude Capital, Rembrandt IP Mgmt.) These are entities that are a cross between IP Acquisition Funds and PLECs. That is, like IP Acquisition Funds, they operate as general partners of a limited partnership and raise money from large institutional investors and high-networth individuals. Like PLECs, however, their stated goal is to acquire a financial interest in patent portfolios for assertion.

Patent Brokers - (Iceberg, Inflexion Point, iPotential, Ocean Tomo, Pluritas,ThinkFire) These are entities that function essentially the same as Licensing Agent model discussed above. The key distinction, however, is that they seek to assist patent owners in finding buyers rather than licensees. Also, unlike licensing agents they operate both on the sell-side and the buy-side.

IP-Based M&A Advisory - (Analytic Capital, Blueprint Ventures, Inflexion Point, Pluritas) These are entities that operate in a traditional investment banking model – advising technology companies in their merger and acquisition (M&A) activities and earning fees based on the value of the entire deal (or apportioned according to the value of the IP within the deal).

IP Auction Houses - (IPAuctions.com, IPA GmbH, Ocean Tomo) These entities are auction houses that hold multi-lot, live auctions for patents with the intent of providing a marketplace for facilitating the exchange of such historically illiquid assets. Such auctions enable sellers to offer one or more patents according to a predetermined set of terms and conditions and allows the auction house to charge listing fees, attendance fees, buyers’ premiums and/or sellers’ commissions.

On-Line IP/Technology Exchanges/Clearinghouses - (The Dean’s List, Tynax, Yet2.com) These are entities that function like the business to-business (B2B) web sites that became the rage during the late 1990’s dot com boom. These entities, however, offer web platforms and interfaces specialized for patent and other IP assets. Essentially, this model can be thought of as online classifieds like Craig’s List, but for IP.

IP-Backed Financiers - (IPEG Consultancy BV, Paradox Capital) These are entities that provide financing for IP owners, either directly or as intermediaries, usually in the form of loans (debt financing), where the security for the loan is either wholly or partially IP assets (i.e., IP collateralization). Thus, these parties often function as intermediaries between borrowers and
commercial lending institutions, such as banks.

Royalty Stream Securitization Firms - (alseT IP, UCC Capital) These are entities that counsel, assist and/or provide capital to patent owners performing IP securitization financing transactions (which resemble the more common mortgage-backed securities). In such transactions, the patent owner sells the patents underlying the transaction to a bankruptcy remote entity (a “BRE”), and the BRE grants a license back to the patents to the original patent owner. The BRE in turn issues notes (i.e., IP-backed securities) to investors to raise cash to pay the original patent owner the agreed-upon purchase price. The notes are then backed by the expected future royalties to be earned from licensing the underlying patents (to the original patent owner and/or third parties). At the end of the transaction, the original patent owner has essentially raised funds much more cheaply than a loan backed by its traditional assets.

Patent Rating Software and Services - (1790 Analytics, The Patent Board, PatentRatings, Patent Café) These are entities that provide advanced patent search and analytics software tools that allow patent owners, attorneys, investors and other players in the IP marketplace to obtain various intelligence and data points about a single patent or patent portfolio.

There's much more in this paper, which also looks at additional emerging business models. It's a fascinating paper that adds an important perspective on the emerging IP market. The paper also adds the following comment in the conclusion:

[N]either U.S. Supreme Court decisions such as eBay, nor any of the so-called “anti-patent troll” legislative proposals floating through Congress, will make such intermediary entities such as PLECs, IP outsourcing companies, licensing agents, merchant banks, exchange operators and the like go away. With as much as three-quarters of the value of publicly traded companies in America coming from intangible assets, and global IP licensing revenue now being measured in the hundreds of billions of dollars, there is simply too much economic justification for such entities to exist. In fact, new players implementing the IP business models described herein will come into existence. And, new IP business models will also come into existence. Why? Quite simply, the business of IP (i.e., IP marketplace) itself is not immune to

To read/download the paper ("A Summary of Established & Emerging IP Business Models"), click here (courtesy of Patent Troll Tracker)

1 Comentário:

Anonymous said...

Thanks for posting this! I've long been thinking about this very thing. Clearly someone else has thought much longer, harder, and better about it than I have. I will post something about it on my blog too. Thanks again.

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