Just posting a few highlights from new Northland report.
Northland Capital
Outperform
Price: $1.73
Price Target: $5.00
Industry
IP
Topic Prospects for 2017
Marathon is engaged in numerous negotiations and discussions with potential licensees of its patent
assets. We see the best prospects for material revenue generation in 2017 coming from its GE oil & gas
portfolio, the Siemens patents and Dynamic Advances. Marathon's asset base and opportunity for
patent monetization has never been greater, with Marathon having increased its patent assets to about 12k
by the end of 2016 v. 325 at the start.
The GE patents are extensive and comprehensive. We believe Marathon has the right to monetize about
11.5k GE patents. The number of patents grows every year as well given GE continues to add to the
portfolio. Not only is the number large, but the patents cover numerous areas of the oil and gas technology
eco-system. The patents cover a variety of areas such as infrastructure technology to identify oil and gas
resources, extraction, transportation, under water drilling and terrestrial activity. GE is also supposed to close
the Baker Hughes acquisition in June, and that could add several thousand more patents to the portfolio.
We believe Marathon is encouraged that it can negotiate a license settlement for the portfolio given the
comprehensive nature of it and large revenue bases that infringe the patents. We believe Marathon has
over 10 large entities it can approach or has approached to license the patents. While some potential
licensees may wait to fight the process legally, others may find a settlement most expeditious and cost
effective. We believe a logical license for each of the 10 would be in the 8-figure million dollar range.
While negotiation and legal process timing can vary widely, revenue mid year is certainly possible from
the GE patents in our view.
Siemens gave Marathon two portfolios, one in wireless tech and the other IoT. Several of the wireless tech
patents are standard essential patents (SEP) in areas such as WCDMA and GSM networks. Basically, if
one sells technology for such networks or runs such networks, you infringe the standard essential patents.
This gives Marathon substantial leverage in negotiations.
The normal process in licensing SEPs is to contact the infringing party and give them an opportunity to
license the patents under FRAND (fair and reasonable) pricing which a court sets. Given Marathon obtained
the Siemens patents last summer, we'd expect this initial step in the negotiation process is nearing an end.
If Marathon files suits in international courts, such as Germany, the first hearing in the infringement trials
would occur in 5-6 months. Judges typically give a relatively concrete view as to their position on the case
then. We believe defendants may see the writing on the wall then, especially when the more definitive SEP
is in play as opposed to other types of patents. While some licensees may settle without litigation before
5-6 months, these trial hearings could act as catalysts for settlement. Defendants that play hardball may
wait for the second hearing which would be about six months later, and also wait for a nullity hearing, which
the defendant would need to initiate.
Given the quality of the GE and Siemens portfolios, Marathon not only seeks large license payments, but
feels it has the ability to negotiate payments on an annual or quarterly basis. This would give more visibility
to the financial model.
Marathon also has strong precedence with its Dynamic Advances patents. Apple paid Marathon $24.9
million last year for a license to those patents. Other companies that have speech recognition applications
likely infringe the patents as well. We believe Dynamic Advances could generate several settlements in
FY17, albeit perhaps not as big in each instance as the potential GE and Siemens hold. Marathon could
use a mixture of soft licensing and litigation with these patents. Possible additional infringers of Dynamic
Advances includes LG, Samsung, HTC, Amazon (Echo), Google and Microsoft.
