Episode 3 in Season 3 of the Cipher Vision Podcast series features Kent Richardson, CEO, Richardson Oliver Insights.
He joined us to share the inside scoop on the patent market. The topics ranged from who is buying and selling and the price, to what the future holds.
He chats to the hosts of the Cipher Vision podcast, who are:
I was an engineer, then went to law school, and became a patent attorney. One of my clients was going public, they asked me to become the General Counsel, so was in-house there for a while.
And then, through various ways, ended up setting up a law firm focused on patent strategy.
There was a bunch of unicorns coming up. And a lot of them didn’t have a big enough patent portfolio or the right patent portfolio because they grew so fast.
We had to create a lot of data management and scraping tools to track what’s going on in the patent market. We are able to at least scrape the US Patent assignment database and pull down information about the assignments and solve that problem.
But as a result of that, we have a big data set.
11 years ago, we published a first report about this opaque market of patents. This covered things like:
To give you some context of how important this was, it is not that our pricing is the perfect answer. It is that there was no information about pricing.
So a really good example of that is for one of my clients. The CEO of another company, came in and said, ‘Hey, would you like to buy our patents?’
Now, it was in a technology space that the client would have been interested in buying. He said, $33 million?
I said, ‘Well, you know, we’re not going to pay $33 million? Because that’s just not going to work. Why don’t you take a look at the Market Report. And then get back to me, I don’t want you to necessarily bid against yourself here.’
He comes back and he goes, ‘Well, we used your market report, plugged in the numbers, how about $350,000?’
What’s happened over that 11 years of us reporting on this market is it’s now at a point where you can find pricing for buying and selling but also we have economists using the data at universities to publish papers on inventions.
Some bad news and interesting news.
The bad news is pricing is dropping for patents. That’s not great news for patent holders, patent creators.
Other news that I think is really interesting: we looked at brokers and brokers as part of this committee. They are really important, but it’s a really small group of people, maybe 40-ish companies in the world are brokers.
We looked at all the closed deals, what percentage of those are represented by brokers?
It’s 90%. And that’s amazing. We knew that brokers were important. We didn’t realise that they were that important.
So this is surprising for us. Even after all this time, we look at this data and we slice it and we ask new questions.
I think one of the things that’s really important before we get too deep into price, is that these are asking prices. So if you look at the average asking price of an asset in 2022, it was about $100k per asset. And for the previous couple of years, it’s been around $150k.
And what happens is the shape of the curves, they look like a rollercoaster, it sort of goes up and then it’s all this long run out.
And the prices can go quite high per asset. So averages don’t really work very well, because people, when they think of averages, they usually think about a nice bell-shaped curve.
And these are not bell-shaped curves and averages sort of really skew the numbers. Medians have other problems but at least we think it’s a better representation.
We can see that median prices drop. And so that’s bad. I think the other thing that’s important though, is the price of assets and actually sales tend to be a little bit more stable, and a little more consistent.
So we’ll see more variation and asking prices than in sales prices. So I think that’s an interesting part of this is that the people who know how to price their assets to sell actually do better and they do it more consistently.
I think it’s rational. I think it’s somewhat orthogonal to other markets.
The folks who find themselves selling are usually inventors who have no other monetization paths. So these are individuals or very small companies that really haven’t been able to productize what they’ve come up with universities, operating companies, there’s a few NPEs.
But if you look at the lion’s share, it’s the operating companies and it’s pretty consistently the operating companies are the ones that are selling, and they’re selling for all kinds of reasons.
One, they’re selling to maybe balance out their portfolio, they have too much something and the maintenance costs get pretty high.
Two, they might be selling frankly, to do something called privateering, which puts pressure typically on a competitor. So they’ll sell to an NPE with the expectation that the NPE will go and harass their competitor.
