By: Patrick Anderson |
Last week it was reported that Snap acquired 245 patents and 207 pending US patent applications from IBM patents for a payment of between $9-10 M USD. Based on this range, and depending on whether you attribute value to the applications, the per asset price for this transaction works out to between $20-$40k each. While others are understandably focused on Snap’s 7-8 figure expenditure to buttress its IP portfolio ahead of its IPO (which by any measure was a success), IBM’s patent prosecution strategy is far more interesting.
IBM’s status as the world leader in patent activity is well documented. Year after year, they sit atop the list of the most prolific filers of patents. While another company may knock IBM from its top spot now and again, Big Blue still ranks very highly, and often re-takes the crown the following year. The Snap transaction offers another window into the ‘why’ of IBM’s on-going patent binge, as these purges often prove to be highly profitable. Although generally undocumented, the patent prosecution community word-on-the-street places IBM’s prosecution budgets for outside counsel at less than $5,000 per application, with office action response budgets averaging less than $1,500 each. Assume an average of 3 office actions per issued patent, and accounting for various administrative fees, and IBM’s average cost per patent may hover around $15,000. Also, consider that a certain number of these applications will be continuations or CIPs, which likely will not command a $5,000 price tag. More likely, continuations are filed for a price closer to that an office action response. This would reduce the average even further.
Transactions such as the one with Snap give IBM a whopping profit per asset of between 30 – 400%.
Granted, IBM is also king of abandonment. Manny Schecter did not deny in an interview with Intellectual Asset Magazine that IBM has abandoned more patents than any other entity 9 of the last 10 years. In fact, Schecter defended this phenomenon, referring to “strategic” and “timely pruning” of assets.
Thus, even with a high abandonment rate, IBM likely draws sufficient revenue to maintain a respectable profit margin with respect to their patent prosecution budget. Thus, while most companies look at patent prosecution as an expense, IBM arguably considers it more akin to a ‘cost of goods sold.’ This approach, in turn, drives their prosecution strategy, effectively commoditizing patents as, more or less, fungible assets. Of course, patents are not at all fungible, and such commoditizing strategies of large, incumbent organizations clog the USPTO, delaying progress on more innovative patent applications. Ultimately, this may be part of a vicious cycle that forces companies like Snap to turn to the transactional market to obtain patents they could never obtain organically in time to answer investor calls.