Marathon Digital Holdings Inc (MARA)

[Brain Tease]

I did not keep up on posts but this is a "classic" ...
Marathon’s decision to turn over patents to Fortress may be part of capitulation Spangenberg predicted would mark bottom of U.S. patent market

Two years ago, Erich Spangenberg, the founder and owner of IP Navigation Group, predicted the bottoming of the U.S. patent market would be marked by a great capitulating event such as the collapse of a major patent licensing player or the sale of a major company or portfolio at a fire sale price.

Spangenberg also predicted that the bottom would be plumbed by the first half of 2016, with the rebound occurring in the second half of 2017. (See https://thepatentinvestor.com/2015/11/great-ip-recession-seen-ending-in-2016-recovery-in-2017/ and https://thepatentinvestor.com/2016/10/great-capitulation-recovery-u-s-patent-market-may-generation-away/)

Since then, the former Unwired Planet Inc. sold its patent portfolio to Les Ware's Panoptis Patent Management for $40 million. In addition, the former WiLAN Inc. has transformed itself into Quarterhill Inc., a diversified holding company much less dependent on patent monetization. Moreover, the former Vringo Inc. has exited the patent licensing business and become a diversified holding company called FORM Holdings Corp.

What Spangenberg perhaps didn't expect was that the turn of his own fortunes or those of his associates might play a a role in that capitulation.

With last month’s news that Spangenberg had parted ways with Marathon Patent Group (MARA), and the licensing company's decision to start handing over patents to a unit of Fortress Investment Group to repay $16 million in debt, that prediction has come uncomfortably close to home.

Since then, Marathon also has announced plans to end the employment contract of Chairman and CEO Doug Croxall who has served as chairman and CEO of Marathon since November 2012. Croxall, who signed a six month retention agreement, has been friends with Spangenberg since 2004 when as CEO of Firepond he engaged IP Nav to help monetize Firepond's patents and generated about $90 million in licensing revenue from 2004 to 2009.

To be sure, Spangenberg and IP Nav have been less visible in the U.S. patent monetization market in recent years, though very active as an IP advisor.

In March, Spangenberg formed Hermes Patents, an IP advisory firm, with Pascal Asselot, a partner at France Brevets. His LinkedIn page also says he's been managing director of SK14 Advisors, an IP advisory firm since March. In addition, he's been CEO of nXn Partners, a predictive analytics firm from 2014 to present. It also lists his time at IP Nav as 2003 to 2014. In January, IP Nav President Deirdre Leane left to join Technicolor SA.

In the meantime, Spangenberg also has sold some assets to Marathon. Indeed, Marathon paid $10 million for MedTech Development Deutschland and OrthoPhoenix. About 45% of MedTech is owned or controlled by Spangenberg. Other properties Spangenberg sold to Marathon include Dynamic Advances, which along with its partner Rensselaer Polytechnic Institute famously won a $24.5 million settlement from Apple Inc.

Soon after, Croxall brought Spangenberg on board as director of international acquisitions and licensing to try to replicate his past success at IP Nav, which Marathon has been betting on for the last year.

When Spangenberg joined Marathon, Croxall said Spangenberg’s connections were “opening the flood gates” and “transformational.”

Unfortunately for Marathon shareholders, the flood gates and transformation didn't go according to plan.

After a terrific first half of 2016, Croxall and Spangenberg’s transformation ran into the reality of the post America Invents Act market, where inter partes reviews before the Patent Trial and Appeal Board proved an efficient way to stymy licensing companies.

The trend of alleged infringers, who only reluctantly settle, was born out of the relative predictability of IPR invalidations, the Federal Circuit's and U.S. Supreme Court’s growing skepticism of injunctions and large damage awards and the confidence that the system was tilted in alleged infringers’ favor.

According to RPX data, at least 63 IPR petitions have been filed against Marathon patents, though some may have been filed before Marathon owned the patents.

As a result, Marathon was unable to make good on Croxall’s forecast that 2016 revenue would exceed $40 million, though it came in at a record $36 million.

Unbowed, Croxall continued to tell shareholders including financier Jeffrey Feinberg that Marathon would produce revenue of $40 million to $50 million in 2017 and even more in 2018 and beyond.

Feinberg has now filed a civil fraud lawsuit against Marathon, Croxall and CFO Francis Knuettell II in Superior Court in Los Angeles. Spangenberg's name is conspicuously absent from that complaint most likely because he played no role in Marathon management's discussions with Feinberg.

Alleged infringers who could always read Marathon’s balance sheet and see the burden of $16 million in debt owed to a unit of Fortress Investment Group were surely tempted to delay and wait for the inevitable.

But Spangenberg’s ability to reinvent himself should never be doubted or underestimated. His creativity was never more apparent than when he teamed with Hayman Capital Management's J. Kyle Bass to use the IPR process to try to invalidate weak drug patents. Though the profitability of their shorting strategy has been questioned, no one questions the brilliance and audacity of the bet, except perhaps the pharma giants they targeted.

Perhaps there is wisdom and a vision in Spangenberg’s decision to pull back and wait for the next opportunity.

When The Patent Investor reached out to Spangenberg for comment on this article, he said in an email: "You can quote me: F*ck you. You are a f*cking moron and you would not know an opportunity if it carried a large neon sign and bit you in your fat a**."

—To reach the reporter responsible for this story, please contact Dan Lonkevich at 707 318-7899 or at [e-mail]