Monetizing Patent Portfolios

January 5, 2011

A few weeks ago Edward Jung, IV’s founder and CTO, blogged about creating an invention ecosystem. IV contributes to that ecosystem in a variety of ways. One of the less known ways is to benefit companies by using financial instruments to allow them to monetize their patent portfolios. This allows those companies to provide value to their shareholders while funding future innovation. We have a team here at IV who does exactly this.

Recently the head of that division, Vincent Pluvinage, described two circumstances where capital was used to leverage the value of patents. Here Vincent answers the question, Who benefited from these deals?

First example. A couple of years ago, we led the purchase of more than a thousand patents that Motorola had filed during the development of the first generation of Iridium Satellites. The original venture went bankrupt after billions invested in this ambitious project, and was purchased for a mere $25M by private equity investors that slowly built up a profitable business. When the “new” Iridium had to select a supplier to build the NEXT generation of satellites, IV sold most of the patents (and a license to other satellite patents) to a French Financial Institution. Thales, a French satellite constructor, was able to help Iridium secure the debt financing in part because of the patents. Here is the value chain: Motorola got to sell an aging and expensive to maintain patent portfolio for immediate cash two years ago. Thales won a $2.9B contract. Iridium secured $1.8B of debt financing. IV investors made a profit on the patent transactions. The initial inventions were recycled and blended with new innovations from a French engineering team, in order to create a better performing constellation to satisfy new needs.

Second example. A couple months ago, we purchased the rights to sub-license the patent portfolio from Digimarc, a publicly traded company with a decade long history of pioneering inventions to create new uses for digital watermarking (a way to hide information in multi-media content). We are busy licensing the patent rights, and they are busy enabling the implementation of the inventions with software, consulting and … more inventions. We guaranteed quarterly cash payment for five years and profit sharing on our licensing program, plus some consulting to leverage their team to help us manage the patents. Here is the value chain: Digimarc reduced expenses and increased profits. We enabled several large companies to immediately benefit from the patent rights and blend, at their own discretion, their own engineering with technology and how from Digimarc. We expect a fast acceleration in watermarked contents and devices, which should finally solve the “chicken and egg” problem that this technology has faced for a decade, and create network effects: more customers for Digimarc technology and more licensees for the patents.

In both of these examples, value is created at the financial level while the company uses capital to focus on its customers.

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