Recession Proof: Patents

by: Tom Hochstatter, President

You can’t read a business headline these days that isn’t lamenting or prognosticating a pending recession here in the U.S. (and abroad). Crunchbase reports more that 73,000 tech sector jobs cut in 2022 so far. In the last few weeks alone we saw Meta, Amazon and Twitter [I know…] announce and then conduct layoffs. There are headlines abound, too, where the Venture Capital community and their portfolio companies have had “the talk” - reduce expenses, conserve cash, cut non-strategic activities now - because their next round of anticipated funding may not be coming, or if it does it will be on much worse terms than before; worse still, if you can’t turn around a money losing start-up quickly enough your investors may be pressing you to shut it down now. I have colleagues in the bankruptcy sector and they advise me they haven’t been this busy since the last economic downturn.

Now, if you know me, you know I’m not the apocalyptic-type. My cup is always “half full”. But some realities cannot be ignored…fail to plan, plan to fail, and all those business axioms… So what to do marching into these headwinds in 2023 as a patent professional?

You have options - good ones too, but we’ve got to get to work right now because your best options will take a bit of time to ramp up and execute.

The Law is economically insular

Scrutinous budgetary moves certainly impact our world here at Techson IP, but maybe not in the ways you might think. Sure, we will see a paced slow down of R&D spending, which will lead to slow downs in inventions and innovations, that in turn lead to fewer patents being prosecuted and the ripple among legal prosecution services at large. So, we fully expect to endure a slow down in our traditional patent research practices, but it also provides a boomerang effect in our patent transaction practice. Our patent research experts are interchangeable among a patentability or patent landscape study as they are at producing evidence of use charts or claim charts for monetization.

Our clients are and will be seeking any means to reduce their patent costs - prosecution, patent maintenance, patent portfolio management along with launching an effort to monetize latent patent value. In fact, since Summer we have engaged and have (now) signed numerous new companies that are attempting for the first time to monetize their valuable intellectual property in an effort to reduce their patent overhead and mitigate any budget cuts. Look what we just saw at Intel in August, selling 5,000 patents to IP Value - especially insightful from a firm that once was diametrically opposed to monetization via a NPE and whose former Assistant GC actually coined the “patent troll” tag two decades ago. There have been many, many more divestitures among large patent holders, both publicly announced and privately executed. And, Techson is the happy benefactor, for many of those. We are forecasting a record 2023 right now.

2023 Patent Monetization: The Perfect Storm

So, why all the optimism heading straight into a 2023 recession? Because, what is “half-full” in Techson’s cup is we will see record patents come on the market, being chased by record patent investment dollars, which should break down any lingering bastions of “patent litigation bad” narratives inside large patent-holding corporations. So, let’s take a closer, more specific look:

1) Patent Investment firms and Non-Practicing Entities (NPEs) have had record setting funding the past two years in raising and securing alternative asset investment dollars to make patent acquisitions and fund their monetization - in soft licensing and litigation. I wrote about their successes back in March - here. We have since seen even more new capital secured. These funds must be deployed or their LPs will demand their money back and with such large funds they are motivated to deploy even more capital, faster. Further, we have see record returns for those early patent investment firms that secured high-quality portfolios 2+ years ago that are now performing.

2) Attitudes inside corporations are changing. The tired “patent and hold” strategies aren’t viable. Accruing valuable assets in a company and then sitting on them doesn’t sit well with shareholders, or the C-suite or your CFO who scrutinizes your expenses. The once taboo topic of enforcing one’s patents - either directly, or through proxy - is waning. Couple that with number one and C-suite executives are now asking the “why not us too” questions of their own IP teams and you better have a defensible answer.

3) Budget cut-backs are leading to more high quality patents becoming available for monetization. Instead of company IP executives simply deciding not to renew lower priority patents assets they are making serious attempts find buyers or partners for them first. Additionally, more core patents are now in the offing for the right price and too the right buyer. This is not limited to the traditional industries that come to mind like smart phones, wireless, computer chips…but we are seeing this in medical devices, oil & gas, cannabis (really), industrial equipment, renewables, just to name a few.

4) The law is economically insular. If your intellectual property rights are infringed the courts will always be open. Equally compelling, if you find yourself enforcing your valuable IP in a down (legal services) market, your ability to more deeply negotiate fees, and secure higher revenue sharing actually improves in your favor; dare we say, counter-cyclical?

5) Companies need monetization expertise. All the motivation in the world to monetize patents doesn’t create the necessary expertise to then execute a monetization strategy. Firms need to seek out and secure monetization expertise if they intend to succeed at it. And while all the above points drive this motivation, there still exists significant requirements to socialization and education inside these patent holding companies. The eventual revenue owners of those patents that protect said revenue need to be fully engaged and briefed on the benefits and risks of monetizing their IP protections. None of us can afford a last minute veto of selling patents after they have been marketed and deal terms negotiated. Do this more than once and the market will punish your corporate reputation (appropriately).

The coming year, and the depth of this economic recession may be just what the patent monetization “industry” needed to become a more mainstream internal activity for patent holding corporations. We are seeing a maturing, new sophistication in investment options for patent holders we’ve long since hoped would have already arrived to this maturing marketplace. Tactical one-off monetization efforts are evolving into long term strategic plans and partnerships to exploit bigger returns for more sustained periods.

The capital and reputational risks of patent monetization is now more reliant on a growing body of public record and success that cannot be disputed by pure rhetoric or what-if narratives. It’s been quite some time since I have seen the “Company X sued their competitor, and won, and they are bad for doing so…and here’s why” headline.

Maybe I am biased and only looking for the “cup half full” headlines, but these are the stories I’m reading and I’m hearing more and more from my clients asking for help to deliver similar outcomes:

Micro Focus settles Wapp patent dispute for £48.7m

Zebra Technologies to pay $360M to Honeywell in patent settlement

VLSI Secures $2.18B Patent Award Against Intel

Intel Hit With $949 Million U.S. Verdict in VLSI Computer Chip Patent Trial

Boston Scientific pays $85M to settle long-running patent dispute with Nevro

Teva wins $175M settlement after jury orders Eli Lilly to pay up on patent infringement suit

Chervon Licenses Blackbird Technologies’ Cordless Power Supply Patent Portfolio

Litigation Finance Gains Traction in Patent Infringement Cases

RPX: NPE Litigation in 2022 YTD Matches Prior-Year Period Despite Q3 Decline