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Let's look more closely at the other side of the NPE story

On Friday Aware Inc, an R&D-based company which develops and licenses software for the biometrics, telecommunications and healthcare industries, closed a $16 million sale of DSL patents and applications with TQ Delta LLC.

Aware is a company that has been around since 1986. According to its most recent annual report it generated $24.6 million in revenues in 2011, and as of 31st December of that year it had 77 employees, well over half of them engineers. In January 2012, the company took the decision to wind-up part of its DSL operation. The 2011 annual report also tells us that R&D spend in the financial year accounted for 30% of revenues, this is down from over 50% a couple of years previously. In June 2012, Aware closed another patent sale – this one with Intel; it was worth $75 million.

TQ Delta LLC is a more mysterious entity. A quick Google search does not reveal a great deal about what it does. However, I don’t suppose it would be hugely controversial to conclude that it is an NPE of some kind and that it will be seeking to make money from what it has acquired, quite possibly through stick licensing - up to and including going to the courts if that is deemed necessary.

In the debate about NPEs and the effect they have on jobs, investment decisions and the economy generally, all of the above is worth remembering. It would be hard to classify Aware as being anything other than the kind of company that the US would like to see more of. Not only does it offer well paid jobs and generate tax dollars for the government and returns for its investors, but it also produces technologies that other businesses in the country and further afield are able to use to do the same thing. And, recently, one of the ways it has built its cash pile is to sell patents – once to an operating company and another time to what we presume is an NPE.

Both sales have enabled Aware to benefit from the investments it has made in R&D. Some of the money raised will be returned to investors, directly or indirectly at least part will be used to build the business. Do we really want to say that one of the sales was “good” and the other “bad”? Do we really want to make it harder for SMEs such as Aware to create wealth from the fruits of their labour? Would it really have been better for Aware to spend time and money in setting up an internal monetisation programme – which might or might not have worked - than to sell its patents on to another entity better placed to do it? 

I would argue that the answer to all those questions is no. I would also argue that a lot more SMEs than Aware are doing similar kinds of deals, but for whatever reason are not making them public; while, for whatever reason, such activity does not seem to attract much interest or research. Surely though, the rights of companies such as Aware to do what they believe is strategically best with their IP are just as important as those of the relatively small number of companies in the US that find themselves the targets of NPEs each year.   


Joff Wild
IAM Magazine
23 September 2012

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Comments

RE: Let's look more closely at the other side of the NPE story

Thanks Joff, for this article and your reporting in general.

Some of these issues are discussed in a recent draft report I have posted. The data on selling is consistent with what you say - 50% of NPE patents come from companies with less than $200M in revenue. However, the number of companies hit by lawsuits and demands is likely much greater than the number of companies selling patents, as a single patent or portfolio could be asserted against hundreds of companies. Based a nonrandom survey I did of about 223 small tech companies, 35% had received a patent demand and 4% had monetized a patent.

From the abstract:, re: small companies

- As PAE targets: Companies with less than $100M annual revenue represent at least 66% of unique defendants to PAE suits and 55% of unique defendants in PAE suits make under $10M per year.

- As sellers and buyers:

"Small companies can also benefit from a robust market in patents, both as sellers and buyers. Patent sales can support the ongoing business. Yet while the conditions of a majority of sales is unknown, they often take place when the company is in distress or transition, as growing young companies often lack the inclination, time, or extra patents to monetize their intellectual property. When patents are sold under firesale conditions, investors, creditors, and patent focused companies share in the profits, reducing the direct returns to the inventive entity. Growing companies can also buy patents from the marketplace "on-demand," overcoming some of the advantages of incumbents. "

The full study: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2146251

Colleen Chien, Santa Clara Law School on 23 Sep 2012 @ 14:28

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