In June we ran our first quarterly patent deals update with data and commentary from Allied Security Trust (AST) and its CEO Russell W Binns Jr. That update covered the first three months of the year and we now have the numbers from AST for the second quarter of 2018. These reveal the top sellers and buyers, as well as the general state of the secondary market for patent assets.
Probably the most notable finding from the Q2 analysis is that deal activity dropped to its lowest level in two years. As Binns points out in his commentary (at the bottom of this piece) the second quarter often sees a lull in dealmaking, so it will be interesting to discover next quarter whether the latest numbers are a temporary drop or the beginning of a pattern.
Beyond the general state of the market, AST’s analysis also shows that while the top sellers include some familiar names, such as Sony and Intellectual Ventures, they also include several operating companies, such as Shell and GE, which have traditionally not been significant players in the secondary market.
Among the top buyers Longitude Licensing, which was acquired by Vector Capital in 2016, picked up a tranche of patents from Seiko, while RPX emerged as the leading player in terms of number of deals – acquiring 101 assets in five separate transactions.
Top sellers by number of assets
| Rank | Seller | Seller Type | Deals | Assets | Industry Category |
| 1 | Seiko | Practising entity | 1 | 386 | Elec (1) |
| 2 | Sony | PE | 1 | 135 | WL (1) |
| 3 | Intellectual Ventures | Non-practising entity | 6 | 115 | Compu (1), Elec (1), Med (1), SW (2), WL (1) |
| 4 | GE | PE | 1 | 82 | Med (1) |
| 5 | Silex Systems | PE | 1 | 77 | Semic (1) |
| 6 | OD Management Systems | NPE | 1 | 70 | Compu (1) |
| 7 | Shell | PE | 1 | 60 | Ind (1) |
| 8 | IBM | PE | 1 | 56 | SW (1) |
| 9 | Torotrak | PE | 1 | 52 | Aut (1) |
| 10 | Cypress Semiconductor | PE | 1 | 50 | Semic (1) |
| Others | 184 | 1,093 | Mixed |
- Practising entity (PE) sellers sold 75.8% of total assets in this quarter (a higher percentage than in Q1) and NPE sellers sold 17% of total assets (a smaller percentage than Q1).
- Nearly 62.7% of the total assets exchanged were related to four industries: industrial (434), communication (393), electronics (365) and semiconductor (270).
- Key question: Will NPE buying continue to increase as PEs increase their selling.
- Worth noting: Multiple individuals sold 55 assets in 23 deals. Buyers include 12 PEs, 10 NPEs and a defensive consortium (DC).
Top sellers by number of deals
| Rank | Seller | Seller Type | Deals | Assets | Industry Category |
| 1 | Intellectual Ventures | NPE | 6 | 115 | Comm (1), Compu (1), Elec (1), Med (1), SW (2), WL (1) |
| 2 | HP | PE | 3 | 29 | Compu (1), SW (2) |
| 3 | Panasonic | PE | 2 | 24 | Semic (1), SW (1) |
| 4 | Huawei | PE | 2 | 19 | Elec (1), SW (1) |
| 5 | Xerox | PE | 2 | 7 | Elec (1), SW (1) |
| 6 | Korea Institute of Science and Technology | Univ | 2 | 4 | Med (1), SW (1) |
| 7 | JLP United States Patent Solutions | NPE | 2 | 2 | Comm (1), SW (1) |
| 8 | Seiko | PE | 1 | 386 | Elec (1) |
| 9 | Sony | PE | 1 | 135 | WL (1) |
| 10 | GE | PE | 1 | 82 | Med (1) |
| Others | 177 | 1,373 | Mixed |
- 109 PE sellers were involved in 114 deals, while 28 NPE sellers (including DCs) completed 34 deals. IV completed the most deals, six, involving 115 assets.
- Key question: how much more will IV sell and in what areas, and how many of those patents will end up in litigation?
Worth noting
- IV and Panasonic have remained on the list of top sellers since Q1 of 2016
- IV sold assets to five NPEs and one PE.
- HP sold its assets to Alphabet (16 assets), SK Group (11 assets) and Red Hat (two assets).
- NPEs sold assets to 18 other NPEs (in 18 deals), 13 PEs (in 14 deals) and one DC (in one deal).
Top buyers by the number of assets
| Rank | Buyer | Buyer Type | Deals | Assets | Industry Category |
| 1 | Longitude Licensing | NPE | 1 | 386 | Elec (1) |
| 2 | PanOptis Equity Holdings | NPE | 1 | 135 | WL (1) |
| 3 | RPX | Defensive consortium | 5 | 101 | Comm (1), Compu (1), SW (3) |
| 4 | Stryker | PE | 1 | 82 | Med (1) |
| 5 | IQE | PE | 1 | 77 | Semic (1) |
| 6 | Air Products and Chemicals | PE | 1 | 60 | Ind (1) |
| 7 | Finjan Holdings | NPE | 1 | 56 | SW (1) |
| 8 | Allison Transmission Holdings | PE | 1 | 52 | Aut (1) |
| 9 | IPVALUE Management | NPE | 1 | 50 | Semic (1) |
| 10 | Quest Patent Research | NPE | 1 | 48 | SW (1) |
| Others | 185 | 1,129 | Mixed |
- This quarter, the top 10 entities purchased approximately 48.1% of the total assets dealt. There were five NPE buyers in the top 10 list, compared with four in the previous quarter.
- Key questions: Will the number of buyers in the market continue to decrease, thus consolidating the activity among a subset of large buyers?
Top buyers by number of deals
| Rank | Buyer | Buyer Type | Deals | Assets | Industry Category |
| 1 | RPX | DC | 5 | 101 | Comm (1), Compu (1), SW (3) |
| 2 | Red Hat | PE | 4 | 19 | SW (4) |
| 3 | LongHorn IP | NPE | 3 | 35 | Semic (2), WL (1) |
| 4 | Blackbird Tech | NPE | 3 | 5 | Comm (1), SW (2) |
| 5 | BBK Electronics | PE | 2 | 36 | SW (1) , WL (1) |
| 6 | Velos Media | NPE | 2 | 24 | SW (2) |
| 7 | TSMC | PE | 2 | 19 | Semic (2) |
| 8 | Ideahub | NPE | 2 | 13 | SW (2) |
| 9 | SK Group | PE | 2 | 13 | Comm (1), Compu (1) |
| 10 | Huawei | PE | 2 | 9 | WL (2) |
| Others | 172 | 1,902 | Mixed |
Assets and deals by industry category
| Rank | Industry Category | Deals | Assets |
| 1 | Software | 63 | 111 |
| 2 | Medical | 29 | 180 |
| 3 | Industrial | 27 | 434 |
| 4 | Electronics | 18 | 365 |
| 5 | Semiconductor | 18 | 270 |
| 6 | Wireless | 15 | 83 |
| 7 | Automotive | 12 | 97 |
| 8 | Communication | 6 | 393 |
| 9 | Computing | 4 | 95 |
| 10 | Other | 4 | 41 |
| 11 | Lighting | 4 | 3 |
- Out of the top 30 deals, based on the number of assets, the top industry categories were software (seven), semiconductor (five) and medical (five).
- Since Q4 of 2015 software assets have accounted for the highest number of deals by industry. In Q2 of 2018, 31.7% of deals, involving 5.1% of total assets, were software-related. Medical deals were the second most numerous, with 14.6% of all deals, involved 8.3% of all assets.
- Industrial technologies (19.9%) and communication technologies (18.1%) topped the list for the number of assets exchanged in this quarter’s deals. Nevertheless, the number of communication deals declined dramatically, from 34 last quarter to six this quarter.
- Key question: Does the decrease in communication deals – and corresponding increase in number of assets transacted – indicate fewer buyers interested in communications and possibly a decreased risk in this area?
Commentary from AST CEO Russell W. Binns JR
Despite some decline in activity this quarter, the patent transactions market continues to be robust, especially in the areas of software, semiconductors, medical and electronics. Overall, we have seen 199 new patent sale deals involving 2,176 assets, with 187 unique sellers and 180 unique buyers.
Though it is not uncommon to see a decline in transactions during Q2, this quarter saw the fewest transactions in more than two years. The question is: are companies gearing up for a buying spree; or are they beginning to batten down the hatches in anticipation of an economic downturn?
Practising entities led both the buying and selling, but when one considers NPEs and defensive consortia as one cohesive industry, they become the dominant buyers – both by number of deals and number of patents purchased. Many of the portfolios they acquired were from practising entities, some of which were large operating companies that used to be inactive sellers, while others tended to be based in Asia.
These developments, and some that appeared once we delved deeper into this quarter’s activity, raise important questions. Among the most important are:
- Will NPEs’ aggressive buying continue?
- If it does continue, will this increase the risk of litigation?
- Intellectual Ventures – once the top buyer of patents in the world – continues to shed assets and reduce its portfolio size
The original article may be found here on the IAM site.