An increasingly diverse mix of hedge funds, sovereign wealth funds and entrepreneurs are behind a wave of new business models targeting a share of the fast growing multi-billion dollar intellectual property (IP) industry, according to IP data provider IAM.
Revenue just from the licensing and royalties from intellectual property such as patents or trademarks has ballooned from USD27billion in 1990 to break through USD180billion in 2009 (source: WIPO).
IAM explains that participants in the intellectual property markets no longer just consist of Non Practicing Entities (or patent “trolls”) but is increasingly made up of investment funds, banks and litigation funding firms – seeking to trade, fund or in some cases even short sell intellectual property assets.
Alongside traditional companies that develop and own IP and NPEs, business models that are shaking up the global IP market, include –
Sovereign Patent Funds – state-backed IP bodies protecting national business interests: Sovereign Patent Funds are an emerging force in the IP market, adding a new dimension to the NPE/aggregator business model. For example, France’s “France Brevets” and South Korea’s “Intellectual Discovery” are designed to help national organisations buy, license and defend patents to maximise IP returns and leverage their operations. Intellectual Discovery is building up extensive patent portfolios and is poised to monetise these assets, while France Brevets is considering creating a distinct fund focussing on defensive activities.
Patent shorting hedge funds: Hayman Capital Partners made headlines earlier this year when the hedge fund manager used what some have described as a “shorting” strategy to turn a profit from IP, filing multiple patent review petitions with the Patent Trial and Appeal Board against life sciences companies while betting against their shares. IAM says this is a strategy with could gain increasing traction with investors.
Patent aggregators accumulating patent portfolios on a mass scale: Innovative patent aggregators are increasingly powerful players in the IP marketplace, amassing large pools of patents on a huge scale on behalf of members/investors in return for an annual fee, then asserting, licensing or selling them strategically so that they cannot be used by competitors or NPEs. RPX’s recent $900m deal to buy Rockstar’s patent portfolio is a case in point – it means that RPX now receives license payments from a syndicate of over 30 companies which include Google and Cisco. RPX’s John Amster is ranked number 4 in the 2015 IAM Market Makers.
Debt financing businesses – which use patent “assets” as collateral: Specialist finance providers such as Fortress Intellectual Property Finance Group are enabling corporates to leverage their patent portfolios and use them as collateral for debt financing, rather than enforcing their patent rights through the courts or selling them. While banks often lack the motivation or expertise to identify the value of patents as a factor on which to base lending decisions, these specialist firms can help organisations unlock their worth.
Litigation funding firms – providing finance for patent cases: Firms such as Gerchen Keller Capital are leading the way in litigation funding, providing capital in order to facilitate and de-risk patent cases in return for a share in the damages, license fees or royalties generated. With more than USD800 million in assets, Gerchen Keller is now one of the largest investment firms focused exclusively on legal and regulatory risk – giving an indication of the scale of this market.
Joff Wild (pictured), Editor of IAM, says: “New players are shaking up the IP market, changing and challenging the dynamics of the industry – sometimes controversially – as they look to take a share of this substantial market.”
“Market participants used to fall into two broad camps – corporates and NPEs. Now there is a far greater range of third-party entities looking to strategically exploit or protect IP assets – or support and advise firms that are.”
“In the last year or so, the IP market has changed dramatically. In the wake of recent landmark US Supreme Court rulings and legislative changes, we are now seeing a new era of profound uncertainty, while in Asia and Europe, confidence about litigation and monetisation is growing.”
“In such a climate, more IP owners are having to adjust their approach to intellectual property, adopting new kinds of leveraging techniques and adapting their defensive strategies.”
