Operating companies ramp up their US patent deal-making, but NPEs see big drop

Operating companies ramp up their US patent deal-making, but NPEs see big drop

March 11, 2019

Richard Lloyd  IAM 11March2019

The latest quarterly patent deals numbers show that operating companies drove much of the market on both the buy and sell side in the fourth quarter of 2018. That helped the number of new deals hit 282, up on Q3 of last year and up by 25% compared with the last three months of 2017. However, the total number of assets transacted saw a sharp decline down to 1,831 from 3,977 in the third quarter when a number of big-ticket transactions, such as InterDigital’s acquisition of Technicolor’s patent business, helped drive up the numbers.

The data comes from Allied Security Trust’s (AST) quarterly analysis for the last three months of 2018 and, as AST CEO Russell W Binns Jr points out in his commentary, the numbers cap a generally positive 12 months for the deals market. One weak spot in Q4, though, is the decline in NPE buying, which historically has driven much of the activity. According to AST’s data it dropped by 80% year-on-year – although, as Binns points out, deals involving NPEs can take longer to be made public so there maybe more transactions that, so far, have not been accounted for.

Microsoft was the top seller in terms of number of assets with two deals that reflect how the company is using its IP portfolio to deepen customer relationships in its cloud business. Both, which involved IT services business ServiceNow and iFLght Technology, the holding company for Chinese drone business DJI, came as Microsoft announced new partnerships with them. On the buyside, Facebook’s acquisition of a portfolio from Provenance Asset Group saw it take second spot overall in terms of the number of assets, behind ServiceNow.

While rights related to communication and electronics led the way in terms of volume, software patents were the subject of the most deals in terms of numbers. According to the data, assets in the sector accounted for 28% of all deals in Q4 which is the highest since 2010. As AST’s analysis for Q3 pointed out, agreements involving software patents have accounted for the highest number of deals by industry since the fourth quarter of 2015. What will now be interesting to follow is whether new guidance on patent eligible subject matter, announced by the US Patent and Trademark Office (USPTO) at the start of the year and which many patent owners have met with praise, provides a boost to the numbers.

You can see our analysis for Q2 here and for Q1 of 2018 here.

Top sellers by number of assets

Rank Seller Seller type Deals Assets Industry category
1 Microsoft Operating company 2 188 Software
2 Provenance Asset Group Non practising entity 1 107 Wireless
3 Panasonic OpCo 2 103 Semiconductors (1 deal), wireless (1 deal)
4 MaxLinear Inc OpCo 1 86 Wireless
5 Microchip Technology OpCo 1 68 Electronics
6 Intellectual Discovery NPE 3 58 Lighting (1), medical (1), wireless (1)
7 Seiko OpCo 2 54 Electronics (2)
8 Verizon OpCo 3 46 Communication (2), software (1)
9 LG OpCo 2 42 Electronics (1), wireless (1)
10 Sharp OpCo 2 41 Lighting (2)
  Others   263 1,040 Mixed

Key takeaways:

  • Microsoft sold 30 software assets to iFlight Technology Co Ltd which develops unmanned aerial systems.
  • Individuals were on the increase as sellers with 76 assets sold to operating companies, NPEs, a defensive consortium and a law firm.

Top sellers by number of deals

Rank Seller Seller Type Deals Assets Industry category
1 ETRI R&D 4 5 Communication (2), software (2)
2 Intellectual Discovery NPE 3 58 Lighting (1), medical (1), wireless (1)
3 Verizon OpCo 3 46 Communication (2), software (1)
4 IBM OpCo 3 9 Communication (1) software (2)
5 Microsoft OpCo 2 188 Software (2)
6 Panasonic OpCo 2 103 Semiconductors (1), wireless (1)
7 Seiko OpCo 2 54 Electronics (2)
8 LG OpCo 2 42 Electronics (1), wireless (1)
9 Sharp OpCo 2 41 Lighting (2)
10 Samsung OpCo 2 37 Lighting (1), semiconductors (1)
  Others   257 1,250 Mixed

Top buyers by number of assets

Rank Buyer Buyer type Deals Assets Industry category
1 ServiceNow OpCo 2 162 Communication (1), software (1)
2 Facebook OpCo 2 108 Software (1), wireless (1)
3 Quarterhill NPE 2 103 Electronics (1), semiconductors (1)
4 Radioxio LLC NPE 1 86 Wireless
5 Wacom Co Ltd OpCo 1 68 Electronics
6 Bench Walk Lighting LLC NPE 2 62 Lighting (2)
7 Allied Security Trust Defensive consolidator 18 60 Automotive (1), communication (1), software (15), wireless (1)
8 Longitude Licensing NPE 1 44 Electronics
9 Velos Media NPE 2 41 Software (2)
10 Ericsson OpCo 2 36 Electronics (2)
  Others   249 1,063 Mixed

Key takeaways

  • The top ten entities bought 42% of all transacted assets
  • All top ten entities are new in this quarter compared with the previous quarter

Top buyers by number of deals

Rank Buyer Buyer type Deals Assets Industry category
1 AST DC 18 60 Automotive (1), communication (1), software (15), wireless (1)
2 Samsung OpCo 4 35 Electronics (1), software (3)
3 IP Edge NPE 3 35 Electronics (1), software (2)
4 Philips OpCo 3 6 Medical (2), software (1)
5 Apple OpCo 3 4 Electronics (3)
6 ServiceNow OpCo 2 162 Communication (1), software (1)
7 Facebook OpCo 2 108 Software (1), wireless (1)
8 Quarterhill NPE 2 103 Electronics (1), semiconductors (1)
9 Bench Walk Lighting LLC NPE 2 62 Lighting (2)
10 Velos Media NPE 2 41 Software (2)
  Others   241 1,217 Mixed

Assets and deals by industry category

Rank Industry category Deals Assets
1 Software 78 114
2 Electronics 48 458
3 Industrial 45 213
4 Medical 42 122
5 Wireless 17 95
6 Automotive 12 16
7 Communication 11 514
8 Consumer goods 10 39
9 Semiconductor 9 124
10 Lighting 8 8
11 Computing 1 75
12 Components 1 53

Key takeaways:

  • This quarter, 28% of deals were related to software. The number of deals involving software assets increased from 55 in Q3 to 78 in Q4.
  • The percentage of software deals is the highest since 2010.
  • Communication and electronics top the list of transacted assets.

Commentary from AST CEO Russell W. Binns Jr.

The fourth quarter saw 282 new patent deals involving 1,831 assets with 256 unique sellers and 241 unique buyers. The number of deals represents a 25% increase over Q4 2017. Overall, the patent sale market has seen a sizeable uptrend in 2018 with more transactions recorded than in previous years.

A few important observations:

  • There has been a major increase in the number of operating companies on both the buying and selling side.
  • NPE buying has decreased dramatically – by 80% from Q3 2018. That said, NPEs typically take longer to record purchases than operating companies do, so this decline may not reflect the true story if purchases haven’t been recorded yet.
  • Most deals relate to software patents and were transacted by operating companies.
  • Two NPEs have filed 16 lawsuits using asset acquired this quarter.
  • There was a significant decrease in the number of transacted assets in this quarter because of the absence of any large deals. There several deals involving 200-plus assets in Q3 2018.