Does RIM’s Patent Shelf Life Affect its Valuation?

Envision IP analyzes the patent shelf lives of RIM, Adaptix, Nortel Networks, Motorola Mobility and ADC Telecommunications to explore the link between patent valuations and portfolio shelf life.

RIM (1)

Maulin V. Shah and S. Farhan Mustafa

July 16, 2012

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On July 9, 2012, International Business Times reported that RIM has valued its patent portfolio at $3.37 billion. RIM claims to have slightly over 3,300 US patents, which works out to about a $1 MM price per patent for the patent portfolio as a whole.

In comparison, Nortel Networks’ sale of ~4,500 US patents to a consortium including Apple, EMC, Ericsson, Microsoft, RIM, and Sony (collectively, Rockstar Bidco LP) in 2011 for $4.5 billion amounted to roughly $1 MM per patent.  The deal included ~6,000 patents and applications, and we identified approximately 1,500 patent applications assigned by Nortel to Rockstar Bidco LP.

Likewise, Google’s acquisition of Motorola Mobility and its ~17,000 US patents for $12.5 billion, shortly after the Nortel deal announcement, amounted to roughly $735,000 per patent.

For the purposes of our analysis, we are not taking into account the value of any pending patent applications in these deals.

Other smaller deals in the wireless/telecommunications space include the acquisition of Adaptix, Inc. by Acacia Research in January 2012, where Acacia Research paid $160 million for 230 US patents, amounting to $695,600 per patent. Furthermore, in April 2011, HTC Corporation acquired 82 US patents from ADC Telecommunications for $75 million, amounting to $914,000 per patent.

While we do not believe that a “price per patent” analysis is an accurate portrayal of the true intrinsic value of a patent portfolio, such an analysis may be useful in order to understand what the marketplace is willing to pay for a group of related patent portfolios.

Given RIM’s own price per patent valuation at a similar multiple as the Nortel deal, and a 27% premium over the Motorola Mobility deal, Envision IP calculated the remaining patent terms of each patent portfolio to understand one of the reasons why RIM is valuing each of its US patents at approximately $1 MM.

We determined that RIM’s patent portfolio has an average remaining shelf life of 13.5 years, based on a 2012 analysis. Nortel Networks’ patent portfolio had an average shelf life of 9.4 years, while Motorola Mobility’s patent portfolio had an average shelf life of 8.1 years, at the time those deals were announced in 2011.

Also, at the time that their respective deals were announced, the ADC patents had an average remaining shelf life of 5 years, and the Adaptix patents had an average remaining shelf life of 12 years.

RIM’s patent portfolio has a remaining patent term that is 30% longer than the Nortel patents, 40% than the Motorola Mobility patents, 65% longer than the ADC patents, and 11% longer than the Adaptix patents.

The additional 4-5 years on the life of its RIM’s patent portfolio over the Nortel and Motorola Mobility patents is certainly valuable, as it gives RIM (or a potential acquirer) that many more years to obtain licensing revenues and possibly damage royalties through litigation.

Thus, if RIM is solely looking at the Motorola Mobility and Nortel deals to value its patent portfolio at $3.37 billion, then logically there may be a basis for their comparable deal valuation.

However, given that the ADC patents, with only a 5 year average remaining term, fetched $914,000 per patent, and that the Adaptix patents with a 12 year average remaining terms fetched “only” $696,600 per patent, this calls into question the legitimacy of a “price per patent” comparable deal valuation, and discounts any direct correlation between a remaining patent portfolio shelf life and a price per patent value.

The true value of the RIM patents will likely be a strategic value; how a potential acquirer feels that it can monetize or commercialize RIM’s patents, and how much an acquirer is willing to spend to keep these patents out of the hands of their competitors.