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Depending on the industry within which it operates, a company’s portfolio of patents may be its most valuable asset. Patents aren’t relevant in some industries, but they’re absolutely vital in many others. Telecommunications and Internet-related companies are two examples.
Companies that rely on intellectual property (“IP”) rights to conduct business have been making some exciting moves in the last five years or so. For example, major players in the telecommunications industry have been buying portfolios of IP patents to the tune of billions of dollars.
Last year Nortel, the bankrupt Canadian telecom, auctioned off 6,000 patents relating to LTE and wireless networking technologies. The consortium that bought them was led by Apple but also included RIM, Sony, Ericsson, Microsoft and EMC. The aggregate purchase price for Nortel’s patent portfolio was $4.5 billion. Google was an under-bidder in the auction, but it consoled itself by purchasing Motorola Mobility and its 17,000 patents for a staggering $12.5 billion.
Those aren’t the only recent multibillion-dollar patent transactions. Within the last year or so, IP-dependent companies like Facebook and Microsoft have acquired patents in transactions that totaled about $20 billion.
Obviously, the CEOs, COOs and CFOs of many major corporations are realizing the value of IP patents to their core and projected business ventures. Companies need the appropriate patents to conduct current and future operations and prevent their competitors from using the patented technology. Patents are vital for these companies, and that alone can make the right portfolio worth billions of dollars. In some cases, individual patents have been sold for as much as a million dollars each.
But patents are also becoming a major force in shaping IP industry strategies. In addition to granting exclusionary rights to their holders, patents are evolving into a negotiating currency in the context of corporate mergers and acquisitions. And trading in pure IP rights (such as patents) is becoming an increasingly common business model. RPX and Intellectual Ventures are just two examples of companies using this emerging model.
Companies who own the right set of patents enjoy a significant market advantage. Some even capture a disproportionate share of their industry’s market. As a result, companies are queuing up to pay billions for high-quality, pertinent patent portfolios.
During Facebook’s early stage, it owned very few patents. Even as recently as year-end 2011, it only held slightly more than 50. But look at what Facebook has done recently. While it was preparing for its 2012 IPO, Facebook was sued by Yahoo for patent infringement. Facebook responded by purchasing 750 patents from IBM and 650 patents from Microsoft for a total price of $550 million.
