Financial Markets (Way) Down - Patent Monetization Up (And Will Remain So)
by: Tom Hochstatter, President
It’s Friday, February 28th and we are witnessing the single worst week of public market losses since the 2008 financial crisis primarily due to the continued spread of the Coronavirus. The fear is the uncertainty of when (or if) it stops spreading, death tolls subside and rushed vaccines that are on the horizon come to full commercial fruition and market distribution. It is nothing to take lightly and my hope is you all stay safe, take the necessary precautions and frankly avoid it altogether!
That said, I am not a doom and gloom person as those that know me best - “cup is always fuller than it is empty…”. So where do we go from here while folks get healthy, stocks recover, companies experience mid-term sales and profitability drops, and global commerce restarts? Simple. Patent monetization.
Patent Monetization Uncorrelated To Public Markets (mostly…)
Just because Wall Street takes a major hit doesn’t change day-to-day (patent/innovation) market dynamics:
1) Research and Development does not come to a grinding halt in major companies (in fact the smart companies attempt to double down on new innovations now to gain an advantage moving into the next rebound). The U.S. rate of R&D will stay pretty steady at 3.0 to 3.5% of GDP or approximately $500 Billion a year - again balanced by those that ride this down and those that double down.
2) The USPTO, or any other global patent office (i.e. government entities) for that matter, doesn’t ratchet down the pace of their workload. All the patents in their queue will be examined/approved/declined at the same rate. In fact, I just saw this morning where the @USPTO is holding a job fair to recruit new examiners. Now, new filings by companies may drop in an attempt to save patent legal expenses, but referring to number 1 above the clock starts as soon as those innovation manifest; so, firms can’t wait forever for fear of being out innovated or straight up wasting those hard earned R&D dollars.
2a) Ditto for court dockets/calendars…
3) Patent maintenance fees wait for no one (also the government…). Now, arguably, this is where, indirectly, patent monetization may be tied to the public markets. I haven’t had the chance to do deeper analysis, but one day soon I will and that is: “Do maintenance fee renewals ebb and tide with global economic volatility?” My guess is the patent renewal folks have some data here [read: open invitation for you, if you have this data, I’d like to study it]. In the meantime, my take is companies will continue to do a very poor job of determining which patents to keep/maintain and which ones to let go abandoned (and worse, not even attempt to monetize before they go delinquent; tragic). But in this froth there are fantastic patent buys to be had!
4) Patents can fetch cash, now. Again, this can be tied to “public market volatility” if you want, but I assert that companies are always willing to entertain offers for their patent portfolios if the bid is fair and reasonable. That said, for those doing the bidding this is a very opportune time to submit aggressive offers to acquire high quality, proven infringed patents. We, at Techson, have seen an uptick dating back to Q4 2019 where (very large) corporations are now open to monetizing parts or all of their portfolios - for the first time.
5) Patent are infringed at the same rate globally, regardless of market volatility. Just because a company’s stock is in the tank doesn’t materially change what they are building, or how, just maybe the pace. Sales may be in decline right now, but if they were infringing before this week, there is even less chance that they will (or can) materially change how they’re doing business over the near term.
Litigation Financing Signals Are Strong
I have discussed the energy in patent litigation financing many times before over the years and there is no slowing that down. We just saw GLS Capital closes a $345 Million fund late last month on what appears to be an oversubscribed fund for their first litigation financing fund.
“The Fund’s diverse institutional investor base includes global financial institutions, endowments, foundations and family offices.”
What I see when I read this quote from their press release is smart money is looking to diversify away from the public markets and traditional asset investing (and good for them). Patent litigation which fuels patent monetization is a lucrative augment to any diversified portfolios. Most funds have allocated 5 to 15% of their investing to “non-traditional” asset investments. I can’t think of a better asset class than patents to fit this thesis - and apparently neither can the endowments and family offices that GLS Capital pitched.
If you are ready to investigate where your cash or your patent portfolio can take you to balance against this market volatility give us a shout. We have a bunch of experience and a very talented team that can guide you to more calm waters and maximize your portfolio return or your ROI on Innovation. Our team has transacted well north of $100 million in patent monetization transactions.
Now, is a great time to be a hero in your fund, your company or your law firm.
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