Latest quarterly numbers show patent deal activity dropping to lowest level in two years

IAM

Richard Lloyd

Author | North America editor

rlloyd@GlobeBMG.com

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.