Patent Portfolio Valuation as Reflected by Market Transactions: Market Dynamics and the Impact of AIA and Alice

Abstract

This essay presents the most recent results from an on-going research project that collects and analyzes the market prices of patent portfolio transactions. The project was initially launched in 2012 as part of the efforts to better understand the pricing behavior of the rapidly growing patent market. As of the end of 2014, the database created by the project had 222 samples of market transactions in patent assets portfolios, with the earliest samples dating back to the 1990s.

After providing the descriptive statistics, the article summarizes the major results from dummy variable regression analysis, including the nonlinear relationship between transaction price and the number of patent assets; technology premiums; strategic premiums; licensing-back discounts; and financial distress discounts. It also finds that the pricing behavior of Non-Practicing Entities (NPEs) is not remarkable, although they are active players in the market. Most interestingly, the coefficient of the dummy variable representing the enacting of America Invents Act (AIA) in 2011 is negative and statistically significant, indicating that AIA may have depressed patent market price during the defined time period. Finally, the analysis shows that the Supreme Court decision in Alice v. CLS Bank (“Alice”) on June 19, 2014 may also have a negative effect on patent market pricing.

The article then highlights the historical trend of patent market price since the 1990s, and explains the market dynamics since 2010.

Keywords: Patent market, transaction price, per patent price, patent portfolio valuation, market dynamics, NPE, Alice, AIA

JEL Classification: O32, O34, C13