Business Insider reports that Yahoo's patent portfolio could generate up to $3B. We disagree and we use data to show why. With an estimated street price of $772M (high of $1.15B, a low of $393M), Yahoo has a valuable asset, just not a $3B asset.
We often see patent prices stated without any data to back up the analysis. We think this needs to change. Below, we show how a quick analysis of Yahoo's portfolio and the patent market leads to some bounds on the street price of the patents.
Note, this estimate is not comprehensive. There are a number of factors to consider that we have not included. Do not rely on the estimate for investment purposes.
Yahoo's Patent Portfolio
Although Yahoo does not appear to report out their total patent assets, a search of Thomson Innovation reports Yahoo as having 2187 US issued patents. Thomson shows Yahoo's worldwide patent assets at 9329, including 4296 worldwide patents.
Yahoo's portfolio is sizable and in an important technology field (the earlier days of the internet). Additionally, Yahoo had been on an extended company buying spree in the early 2000's, snapping up pioneering companies and their patent portfolios.
Yahoo has also been able to hire some of the best patent development teams in the industry. Previous teams helped start RPX and other patent monetization companies. The current team includes members with decades of successful patent development and monetization experience at places like IBM.
These are all good things that would lead you to believe that Yahoo's portfolio may result in a $3B payday for Yahoo. But the real question is what is the portfolio priced at today on the open market.
Not Your Mother's Patent Market
We regularly report on the market price of patents. (See and download our latest market report for all the data.) The market is changing quickly. Our data says that the market is down well over 60% from four years ago, and continues to decline. Not dead by any stretch, but not anywhere near what it was four or more years ago.
You can see some of the declines in the publicly reported deals. In 2011, Nortel's portfolio sold for $4.5B. Two years later, Kodak's was expected to sell for well over $1B; it sold for $527M. This is not an apples-to-apples comparison, but the important thing is that expectations and reality diverged and we believe that expectations continue to diverge.
In January, we reported 2015 asking prices dropped by 20% YoY. The 2015 asking prices are shown in Table 3 from our paper (below).
What's the Street Price for Yahoo's Portfolio?
Let's assume that Yahoo's entire portfolio was broken up and sold out onto the open market. What might they get for it? With 9329 assets, we would expect a high asking price around $1.8B. However, on a per issued US patent basis, the asking price would be $605M. We typically discount the seller's asking price by 35% resulting in street prices between $1.15B and $393M. That is a big spread, but in neither scenario did we get anywhere near $3B. These numbers also assume that every asset sells (see the market report for more information on sales rates).
How do you reconcile the spread between the US issued patent and the all patent asset prices? Yahoo's portfolio has a higher number of international assets and pending patent applications, increasing the per asset estimate. However, the per issued US price would be too low because of the higher number of other patent assets. For this analysis, the midpoint between the two is a reasonable starting place at $772M.
What Big Factors Could Impact This Price?
In addition to having many internet patents, a strong internal team, what else might impact the price for good or bad?
- Overall strategic value. For a potential patent portfolio buyer, Yahoo's patents may be what's needed to enter the US market. Imagine a scenario where until now, a company has not entered the US consumer electronics market for fear of patent attacks from Apple and others. Yahoo's portfolio may very well be the patent boost needed to defend against those attacks.
- Yahoo has done well at selling patents. Yahoo's latest 10K (annual SEC report) does not list the number of patents sold, but it does show proceeds from patent sales. 2013-2105 were $80M, $87M and $29M respectively. Note, 2015 was the lowest year of the three. By any standard, these are strong sales numbers. Yahoo's internal team has been busy and effective.
- Yahoo may show greater adoption/use of their patents. We found that if Yahoo can show greater overall adoption of their technologies (more companies are infringing), they have the opportunity to demand a premium price (up to 25%).
- The 2014 US Supreme Court's Alice decision gutted business method patents and damaged many software patents. Yahoo is not immune to the negative impact.
- We did not include an estimate for no-sales. Many patents on the market never sell; it's reasonable to include a discount for the chance of some of the patent not being sold (not being considered valuable enough to sell). The discount for potential no-sales can be significant, up to 70%.
- Per-asset prices usually decline when adding more patents to a deal. The blue line of the figure below shows that as the number of assets increase (x-axis) in a potential patent deal, the price per asset tends to drop (y-axis.
Conclusions and Thoughts
We are often frustrated by wild or anecdotal reports of patent prices and sales. Business decision makers seek real data to support informed patent buying, selling and pricing. We think our industry needs more data and more analysis. Board members, CEOs, CFOs are all looking for Intellectual Asset Management guided by both experience and data. Wild projections on patent values hurt us all; data-driven decision making brings business credibility to the industry of Intellectual Asset Management. Our goal in putting this post together was not to show that Yahoo's portfolio should be a specific price. Our goal was to show that with a few pieces of data, the price can be bounded and the factors impacting that price understood.
At $772M, Yahoo's patent portfolio is a valuable asset. But, this is just an estimate of the street price of Yahoo's patents. The important point for investors and potential purchasers is that market data can help you understand how to think about the price of Yahoo's portfolio, what additional questions you might have when evaluating it, and where to look for more information.