The IBM patent selloff continued right up until its decision to join LOT Net
As we revealed yesterday, IBM has joined the License on Transfer Network (LOT) in a move that has some big implications for the company’s monetisation strategy going forward.
It had became apparent that Big Blue was likely to sign up to the defensive operator after its acquisition of Red Hat, which closed last July. For one thing, it signaled its intent to support various initiatives that Red Hat was a member of, including LOT; while the company’s flurry of patent dealmaking through the course of last year suggested that something was in the air.
Being a LOT member does not rule out selling patents, but it does place significantly more encumbrances on them under certain circumstances and therefore potentially reduces their value.
Perhaps with that in mind, IBM's 2019 patent sales spree continued right up until the end of the year. Records on the USPTO’s assignment database showing that IBM closed a deal with Tessera, the IP licensing arm of Xperi, in late December. According to the records (which you can see here, here and here), Tessera picked up more than 400 applications and grants, many of which related to semiconductor technology.
That deal follows other major IBM sales through the course of late 2018 and 2019. These included deals with with operating companies Pure Storage, Wayfair and HCL Technologies, and the NPE Daedalus. The sales to Xperi, Pure Storage and Daedalus alone involve around 2,500 US assets.
But while the tech giant may remain an attractive source of supply on the secondary market for operating companies, its membership of LOT means that deals with NPEs are now most likely off the table.
That’s because other members of the defensive network automatically receive a licence to any assets sold by a member to a patent assertion entity (PAE). LOT says an outfit is a PAE (or, as it likes to term it, a patent troll), if: "The entity (including its parent and any subsidiaries) generates more than half its total revenue from Patent Assertion in a twelve month period, or if the entity has a plan approved by senior management to do so."
Although more than 50% of Xperi’s revenues have come from semiconductor and IP licensing (as it appears on the company’s balance sheet) in the past, in 2018 the company’s product licensing arm accounted for the majority of revenue.
However, while Xperi itself may not now qualify as a PAE under LOT’s regulations, Tessera probably does. Getting the sale done prior to joining LOT makes that academic, though, as divestments that occur before a member joins the network do not come into the equation.
Overall, IBM’s sales campaign throughout 2019 at least suggests that Big Blue has been only too well aware that its patents were going to be relatively less attractive to some players once it had become a LOT Net member.
Beyond Big Blue, the transaction is also significant for Xperi. Late last year it announced proposals to merge with TiVo in a move that would create a broad based tech business with one of the largest patent licensing operations around.
The deal is still waiting for the necessary regulatory and shareholder approvals. However, assuming it gets the green light the combined company will boast more than 10,000 patents and applications. So the IBM assets add to what is already shaping up to be a very formidable portfolio.
