As start-ups and small- and medium-sized enterprises (SMEs) begin to realize that IP accounts for a vast majority of their value and key to their exit strategy, large companies begin to use IP as a driver for strategic business decision making, and investors begin to realize that IP is an asset class capable of producing significant returns, more patent sale transactions are bound to occur. Yet, I have often commented that there is a crucial lack of widely-accepted valuation models and techniques which hampers the patent marketplace. That is, unlike real estate where brokers and agents can “run comps” using the MLS, the opaque patent marketplace makes it difficult for buyer and seller to quickly arrive at a selling price. This further adds to the illiquidity of the patent marketplace. Further complicating matters is the fact that a potential buyer (or licensee) can easily spend US$20,000 or more performing due diligence on a single patent (or patent family). Thus, when a large patent portfolio becomes available, how do you practically determine a price!? (Remember, as Warren Buffet famously stated: “Price is what you pay. Value is what you get.”) Well, I recently came across an observation that may reveal a useful metric for such large transactions:
- When Novell sold a portfolio of 882 patents for $450M to CPTN Holdings (a consortium of Microsoft, Apple, EMC and Oracle) in December of 2010, the price per patent = US$510,204.08.
- When Google acquired Motorola Mobility Holdings, Inc. – and its 17,000 patents – for US$12.5B on August 15, 2011. After netting out other assets and liabilities, the price per patent = US$510,204.08!
Coincidence!!?? Hmm… Does that mean when ADC Telecommunications sold 133 patents to HTC for $75M in April of 2011, where the price per patent = US$563,909.77, they overpaid? Are we in a “half a million and change per telecom patent” bubble period!? We’ll see.
