Despite just $11 million of deals in three years, the IP3 patent buying programme is creating significant value

Richard Lloyd     IAM    24Jan2019

AST announced the results for the latest IP3 patent buying programme earlier today. The headline number is that 19 operating companies, including Google, IBM and Microsoft, spent $3.1 million to acquire 32 patent families at an average price of $99,000. That’s largely up on 2017 when 15 companies spent $2.5 million on 19 families at an average price of $127,000, but down on 2016 when the total spent was $5.3 million on 55 families.

Although the idea of a deal-making platform designed to speed up the transaction process was originally conceived by Google back in 2015, for the last three years it has been run by AST. In that time close to $11 million has been spent on more than 100 patent families. That’s not insignificant, but perhaps not quite the volume of deals that might have been expected four years ago when the idea was coming together in Google HQ.

Here’s how the headline numbers compare from the three years of IP3:

Year Amount spent Assets bought Average price per family Companies participating
2018 $3.1m 32 families (55 total active assets) $99k 19
2017 $2.5m 19 families (70 active assets) $127k 15
2016 $5.3m 55 families (107 active assets) $96k 21

So in the last three years what has IP3 told us about the deals market? For one thing it is proving one of the axioms of the patent world. “There are very few gems among all the garbage that’s out there,” commented AST CEO Russell Binns. “When you take all of the patents offered for sale, from that 100% typically only 10% is worth looking at and then 5% or less is worth buying.”

The trick, Binns said, is working through the 90% that nobody is going to buy and finding the assets that have some value. In the current climate, the AST head admits that some companies are becoming pickier about what they buy in part because of uncertainty in the global economy. “I think everybody is a little bit under budget pressures right now and so people are being pickier and the transaction market has been moving slower,” Binns remarked. As a result, assets are staying on the market longer and it’s still very much a buyers’ market.

The tiny percentage of assets that AST members end up acquiring through IP3 – 803 patent families were submitted by IP owners for consideration with less than 5% ultimately acquired – also suggests that as well as a lot of poor quality grants being offered, there are also some wide gaps on valuation.

As part of the sales process, patent owners are asked to name their price, with no negotiation, in an attempt to speed up the process. The numbers would suggest, therefore, that some are pitching their asking prices too high and turning AST members off.

IP3 covers just one aspect of demand which, according to Kent Richardson of Richardson Oliver Law Group (ROL), might not exist without the auction platform. “Our data indicates that this is not cannibalising the market,” he commented. “AST has adapted a model that allows for an accelerated process to close deals that would not have found a home otherwise.”

Each year ROL gives us a more complete picture of the deal climate through its survey for IAM of the brokered patent market. The most recent edition painted a more optimistic picture of current conditions than the IP3 auction might suggest with growth of 20% last year and total sales of $353 million.

IP3 is therefore a tiny fraction of the market but for the participating companies arguably its true worth lies less in the assets that change hands and more in the snapshot of what’s out there, being offered for sale. In an increasingly data-driven world, that’s where the biggest value lies.

Link to original story may be found here.