Multi-Billion Dollar Acquisitions of Patents

Multi-Billion Dollar Acquisitions of Patents

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A number of international, multi-billion dollar acquisitions of patents is probably the start of a new investment trend as companies begin to realize the value of patents.

This is according to Chris Bull, director at ENS says we are starting to see stock markets “tune in” to the value of patents.

“In our view boards of directors of listed and private companies are going to have to engage more actively on the issue of intellectual property. They are going to have to demonstrate how they are creating additional value for their shareholders from active intellectual property management. Without this shareholders are right to complain that value is being left on the boardroom table,” he says.

Big deals in the pipeline

He refers to deals such as AOL’s sale of 800 patents to Microsoft for $1 billion dollars which had echoes of Google’s acquisition of Motorola for $12,5 billion is the first of many such deals.

In the case of the AOL and Google deals, Bull says both transactions involved companies that had been losers in recent years in the competitive world of modern media and high technology and both transactions also involved companies that appreciate the importance and value of holding strong portfolios of intellectual property.

However, according to Bull, South African companies are unlikely to be able to benefit from this trend as few hold patent portfolios large enough to have “residual” patent portfolios with substantial value. “The challenge inSouth Africastill remains one of raising the awareness that patents can add substantially to the overall value of a business. All this starts with a conscious effort to actively manage intellectual property. This awareness needs to be driven by the board and senior management of companies.”

Bull explains the different mindset in the case of Google’s acquisition of Motorolla patents. He says analysts and rivals of Google were quick to appreciate Google’s motivation behind its acquisition of Motorola Mobility, the mobile phone maker.

“It hinges to a large extent on the patents held by Motorola.  Google faced lawsuits from its rivals Microsoft and Apple over the successful launch of its Android mobile phone software. In this battle Google needed to give itself leverage against its rivals. Motorola offered Google this leverage in that Motorola had a formidable portfolio of patents, arising from Motorola’s once strong position in mobile phone technology,” he says.

A new tech bubble

According to Bull, Motorola’s market position had declined in recent years relative to its competitors and it is estimated that it held only 4% of the global market for smart phones. “However, despite its decline in market share Motorola still held a prime position in the world of patents, with its patents remaining central to much of the technology that is used in mobiles,” he says.

Bull says valuing intangible assets like patents depends on a wide range of issues, not least of which is the strategic value to the buyer. “Motorola held 17 000 patents, which apart from being a large portfolio is also of high quality with key industry patents in the portfolio,” says Bull.

According to Bull, current market trends would value portfolios such as the Motorola portfolio at approximately $250 000 per patent.  However, Google paid substantially more than this at an average of approximately $350 000 per patent. According to Bull this is by no means at the upper end of the range for recent patent transactions. He refers to the sale of 6 000 patents from Nortel to a consortium led by Apple and Microsoft where the price was $750 000 per patent.

Based on these examples, Bull says there is speculation that these sorts of transactions point to a new kind of tech bubble – a Patent Bubble. However, Bull argues that this is not the case as the range of values that are being derived from large, well-positioned patent portfolios is consistent with valuations that have been achieved over the last decade.

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