No longer simply a decorative plaque on the wall or a mere asset on a balance sheet, patents are quickly becoming valuable commodities to be bought, sold, and bartered by sophisticated businesses and market players.
As a result of rising patent damages awards and as evidenced by recent high-profile patent transactions -- from the $4.5 billion sale of Nortel's patents, to the $12.5 billion purchase of Motorola Mobility by Google, to Kodak's $527 million sale of 1,100 digital imaging patents -- the patent market is thriving as product manufacturers, patent aggregators, and licensing entities alike are acquiring patents. This phenomenon is not limited to large-scale purchases; smaller portfolio transactions are increasingly commonplace. Indeed, healthy and distressed companies alike are marketing their patents.
One reason for marketing patents is to increase cash flow by liquidating patent assets. Like Kodak and Nortel, some companies seek to pay off creditors in bankruptcy proceedings. However, companies need not be in financial distress before choosing to market their patents.
For example, companies may wish to sell unrelated patents from an acquisition or patents in an area of technology or geographic location in which they no longer compete, using licenses and covenants to protect themselves from patent suits by new owners. There are many patent brokers available to market patents to a variety of purchasers.
The market for patents is varied and robust, and each player has unique motives in seeking to acquire patents. Companies may purchase patents when entering a new market, or they may want to expand an existing portfolio with an eye to deterring or reducing the threat of patent litigation.
Companies may seek to acquiring patents that could be asserted against their own products in order to prevent those patents from landing in the wrong hands, particularly those of non-practicing entities (NPEs). NPEs acquire and aggressively litigate patents with the goal of obtaining licensing fees and settlements, without actually using the underlying patented technology to create or market products, which makes them immune to patent counterclaims. A direct or indirect patent purchase may avoid expensive litigation costs or royalties by preventing those patents from winding up in the hands of a competitor or an NPE.
Some companies turn to defensive patent aggregators, such as RPX Corporation, which acquire and license patents as part of a strategy to minimize their clients' exposure to NPE litigation, while promising not to assert, litigate, or seek royalties from the patents.
A significant market for patents exists with NPEs. Acacia Research Corporation, a well-known NPE, has reported that its over 250 patent portfolios have grown at a rate of 29 percent annually over the past six years, and according to Bloomberg, the aggregate value of patent acquisitions jumped from $450 million to $18.8 billion between 2011 and 2012. Patent acquisitions by NPEs are likely spurred by the rise in patent infringement lawsuits brought by NPEs and patent damage awards.
Data compiled by RPX Corporation indicates that NPE-initiated investigations in the ITC increased by 220 percent from 2010 to 2011. Similarly, NPE-initiated patent suits in federal court increased 313 percent from 2006 to 2011.
In summary, the recognition of the value of patents has created avenues for companies to monetize their research and development investments and, with careful analysis, provide companies with additional patent protection for the future.
[Brian Chang, Weil Gotshal & Manges, contributed to this article.]