Most Read Contributor in South Africa, September 2016
AOL's sale of 800 patents to Microsoft for $1 billion
dollars has echoes of Google's acquisition of Motorola for
$12.5 billion. Both transactions involved companies that had been
losers in recent years in the competitive world of modern media and
high technology. Both also involved companies that appreciate the
importance and value of holding strong portfolios of intellectual
property. Many have likened this trend to a modern gold rush.
Analysts and rivals of Google were quick to appreciate Google's
motivation behind its acquisition of Motorola Mobility, the mobile
phone maker. It hinges to a large extent on the patents held by
Motorola. Google faced lawsuits from its rivals Microsoft and Apple
over the successful launch of its Android mobile phone software. In
this battle Google needed to give itself leverage against its
rivals. Motorola offered Google this leverage in that Motorola had
a formidable portfolio of patents, arising from Motorola's once
strong position in mobile phone technology.
Motorola's market position had declined in recent years
relative to its competitors and it is estimated that it held only
4% of the global market for smart phones. Despite its decline in
market share Motorola still held a prime position in the world of
patents, with its patents remaining central to much of the
technology that is used in mobiles.
It is always difficult, although not impossible, to put a value
on intangible assets like patents. It depends on a wide range of
issues, not least of which is the strategic value to the buyer.
Motorola held 17,000 patents, which apart from being a large
portfolio is also of high quality with key industry patents in the
There are some broad guidelines that are used for valuing
patents in large portfolios such as this. Current market trends
would value portfolios such as the Motorola portfolio at
approximately $250,000 per patent.
Google paid substantially more than this. Reports have estimated
that it paid at least $6bn for the patent portfolio - or an average
of approximately $350,000 per patent. This is by no means at the
upper end of the range for recent patent transactions. Take for
example the sale of 6,000 patents from Nortel to a consortium led
by Apple and Microsoft where the price was $750,000 per patent.
Some have asked if these sorts of transactions point to a new
kind of tech bubble – a Patent Bubble. Patent specialists
argue that this is not the case as the range of values that are
being derived from large, well-positioned patent portfolios is
consistent with valuations that have been achieved over the last
decade. The reason for the sudden profile that these sorts of
transactions are receiving is both as a result of the size of the
transactions but also the pressure on companies to find other
sources of unrealized value during the economic downturn. This
additional value could come by way of enforcing patents against
competitors or selling off assets (such as patents) that are no
longer of strategic value (with the AOL transaction being a case in
South African companies are unlikely to be able to benefit from
this trend as few hold patent portfolios large enough to have
"residual" patent portfolios with substantial value. The
challenge in South Africa still remains one of raising the
awareness that patents can add substantially to the overall value
of a business. All this starts with a conscious effort to actively
manage intellectual property. This awareness needs to be driven by
the board and senior management of companies.
We are starting to see stock markets "tune in" to the
value of patents. In our view boards of directors of listed and
private companies are going to have to engage more actively on the
issue of intellectual property. They are going to have to
demonstrate how they are creating additional value for their
shareholders from active intellectual property management. Without
this shareholders are right to complain that value is being left on
the boardroom table.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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