Market for Patents Was Softer in 2013, Firms Say

Technology companies have for years been stockpiling patents as an aggressive defense against lawsuits. But patent prices and transfers were down significantly in 2013, according to data from a patent brokerage company and an intellectual property valuation and investment firm.

While the decline could have been be skewed by a spike in patent sales in 2011 and 2012, the trend could also signal that businesses may be anticipating that changes in patent law are on the horizon.

“It’s been in the air for the past few years that maybe software shouldn’t be patentable,” said Jeanne Fromer, a New York University law professor who specializes in intellectual property.

Software patents can be incredibly complicated, and technology companies worried that if they did not have enough, they could open themselves up to litigation. On Friday, Twitter purchased 900 patents from IBM after the computer giant reportedly complained about possible infringement.

“It’s kind of this weird patent arms race that has happened particularly in the software and high-tech areas,” Ms. Fromer said. “They’re just being bought up and sold around as a shield rather than as a technique of innovating.”

Facebook bulked up its own patent arsenal ahead of its initial public offering. In 2012, it bought about 650 patents from Microsoft for roughly $550 million. That deal came less than two weeks after Microsoft had bought those patents, along with about 275 others, from AOL.

Not only can software require multiple patents, but those patents can also be very difficult to decipher, and that only fuels the uncertainty that has driven some patent sales.

“If I gave you a patent to read, you’d be staring at it until the end of time, even if you were an expert,” Ms. Fromer said.

The fear of being sued is not helped by what are known derisively as “patent trolls,” or entities that stockpile patents in order to collect licensing fees by suing companies for infringement.

But changes to patent law may be on the way. The Supreme Court is about to take up the issue of software patents in the case of Alice Corporation Pty. v. CLS Bank International, and advocates for legal changes have called on federal lawmakers to restrict what they see as frivolous litigation.

The average price per patent declined in 2013 by more than a third from the 2012 figure, according to IPOfferings.com, a patent brokerage firm, in data based on public and proprietary records.

The number of transfers of patent ownership, called patent “assignments,” has also been steadily decreasing since 2011, according to data from Ocean Tomo, which describes itself as an intellectual capital merchant bank. The pharmaceutical industry still makes up the largest single group of patents, Ocean Tomo said.

The data from 2011 could be skewed by one of the biggest patent sales in recent memory. That was the year that Nortel, the defunct Canadian telecommunications equipment maker, sold a trove of 6,000 patents to a group of technology giants that included Apple and Microsoft for $4.5 billion. At the time, George A. Riedel, the chief strategy officer of Nortel, called the size and dollar value of the deal “unprecedented.”

“I think that was an extraordinary peak, and we’ve returned to more of an average, and even the average I would say is higher than five years ago,” said Richard Ehrlickman, the president of IPOfferings.com. “The general patent market is absolutely on a growth curve outside that spike and there’s significant demand.”

But a decrease in patent volume could also signal that businesses see shifts coming to the intellectual property landscape.

“It may mean that people are feeling more confident that things are imminently changing in ways that might make them feel that they’re not in so much danger, that they don’t have to buy up patents defensively,” Ms. Fromer said. “It’s hard to read into the tea leaves, but it’s surely possible.”