For at least half a century, business leaders have seen dramatic increases in their need to consider Intellectual Property, or “IP,” in strategic decision making, particularly as they address issues of growth and exit. Related rights – especially patents – are now recognized as cornerstones of business architecture and are an important consideration in M&A.
It’s been a year since our last webcast, Patents in M&A, covering those considerations. An update on patent matters in M&A seems to be in order, especially because of recent news surrounding patents:
- We saw the end of one of the longest and most prominent IP battles so far this century. The dispute between Apple and Samsung ended in victory for Cupertino, though apparently well shy of the judgement’s nearly billion-dollar potential that looked possible just last month
- The 10 millionth US patent was issued last month. Grants continue to accelerate, led by large tech companies, like IBM, which aren’t just jockeying for advantage in legal but also branding advantages.
- Facebook saw a downside to patents as branding last week as press coverage of a filing for triggering cell-phone mics with ambient sounds quickly spun viral, prompting additional stories about its many “creepy” patents, all hooked to the privacy concerns the company clearly wishes it could squelch, since its IP VP took care to state it would “never” build that tech.
- Blockchain patents caught a wave of PR too, with some even floating the notion of a one-stop patent licensing consortium similar to what has been done in sectors like video and chemical manufacturing. Analysis shows blockchain IP led not only by financial firms like Bank of America and tech firms like IBM (of course) but even Walmart and Ali Baba.
Our own experience in the tech M&A market has seen buyer reaction to assertions of standalone value in patent portfolios decline some since last year and certainly since earlier this decade when the Nortel patent auction drew multi-billion dollar bids. But patents remain valued in context for their synergy as a component of an operating business where they provide various advantages.
Some of those vary by market sector. For instance, IT Services sees little patent activity. Other segments have different norms, from the domain-intensive Vertical markets to the intriguing little gems of gameplay and commerce mechanisms that give Consumer applications an edge. And, of course, much of that commerce flows through the grandest consumer-facing innovation of all, the Internet, and patents there can be intriguing.
Here are some points of patent value that sellers should consider:
Credibility
Just using the adjective “patented” succinctly backs up an M&A seller’s claim to be innovative. Be careful, though, since if the patent isn’t granted yet, any representation needs to be just “patent-pending”. But even that adds credibility since it means you were able to organize a disclosure and usually some potential claims – showing you were able to lay out a reasonable case for it being inventive, much as admission to an elite college can provide credibility for a student even before a degree is granted.
Branding
As mentioned, the perceived marketing value of patents for sales and HR recruiting/retention appears to be on the rise. Particularly if a buyer already has this as an aspect of their business and culture, your patent portfolio can benefit in this regard.
Tie-ins
News drives everyone’s perceptions of what is ‘hot’ and worth further consideration. Stories like those laid out above could serve as ways to get buyer attention, particularly for a complex business model or obscure market.
Structure
The structure of a deal is important, even more than the apparent price, and the presence – or lack – of a strong patent or patent portfolio can affect the acquisition terms, indemnifications, escrow hold-backs, etc.
Utility
Characterizing a patent in terms of what it means in context (for instance, defensive or offensive) can help break trail to a marketing objective or inhibit the funding of competition. Value also varies based on the extent of licensing, how much its validity has been tested, and patent expiration dates; if these are advantageous, they should be pointed out.
Finally, one question we often get comes from companies who hold a patent that they think a larger company is infringing upon. It could be true, but patent fights are difficult even with great IP: heavy weapons are useless in weak hands. Moreover, it’s not the way to lead into friendly M&A with the infringer, and will likely lead you to ending discussions with corporate development, and beginning discussions with legal. Buyers who value IP are generally in fraught competitive situations already – you don’t want to tap the big guy on the shoulder and ask for your seat back while he’s busy in a bar brawl! It is better to get into discussions first, then at a timely ‘teachable moment’ point out the value such a patent can have to the acquirer’s company in its own patent fights or emphasize the value it provides to the successful business you are operating, including as outlined above.
Patent law, practice, and value keep changing. We hope this update and review are useful, and would highly suggest you view our webinar from last year for some more background on the subject and watch for our next one.