For the purchasers of BlackBerry’s portfolio, the challenge laying ahead is an obvious one.
The post Restarting The Patent Treasure Hunt appeared first on Above the Law.
I have been writing about the potential of BlackBerry’s patent portfolio for a long time, including a 2017 column on these very pages. As the company shifted from a posture of competing on the hardware front to trying to reinvent itself as a patent monetizer par excellence, I have also written about the challenging road that BlackBerry needed to navigate in the pursuit of patent profits. That road included spirited defenses by targets like Facebook, which not only served to force BlackBerry to expend resources proving up the value of its patents, but also may have emboldened other potential licensees to hold out from taking licenses short of litigation. And even though the market for BlackBerry to continue to take the lead role in enforcing its portfolio arguably improved with the rise of third-party litigation funding over the past few years, both company management and its investors started looking at a mega-patent sale as BlackBerry’s best chance to extract maximum value from its long and expensive investment in building one of the most robust and impressive patent portfolios around.
Right at the turn of 2022, it looked like BlackBerry had pulled it off, with the announcement of a high-value sale of its mobile and messaging patent portfolio to a monetization group for a sizable $600 million. Yes, some of the money needed to get paid over time, but the general expectation was that the sale would go through, pending the necessary government approvals. Once the latter happened, it was a surprise to many that the whole deal crumbled, leaving BlackBerry in the unenviable position of either doing an about-face on its sales strategy, or looking for a buyer willing to purchase a portfolio that was not only aging by the minute but that also had been proven unable to attract enough investor interest to justify the $600 million sales price. Put another way, the fact that the original purchasers failed to close the gap financially in a robust funding market — where litigation funders of all stripes had more capital to deploy than good projects to deploy that capital in — served to put a damper on valuations of BlackBerry’s patents post-busted original sale.
Credit to BlackBerry, however, for sticking with it. Earlier this month, a second sale of the vast majority of BlackBerry’s patent portfolio was announced. While the guaranteed cash to the company was lower at under $200 million than the aborted prior deal, the buyers could end up paying BlackBerry up to $900 million for the patents, assuming blockbuster licensing escapades going forward. Most importantly, all indications are that the new buyers actually have the money to pay for the patents, as well as the licensing expertise and wherewithal to try to recoup their investment and earn a return — even knowing as they do that they are entering a market with a lot of unwilling customers to try to convince to pay up. In terms of the deal’s structure, there are a lot of parallels to what we see in many team sports, where a team will give an incentive-laden contract to a fading, but still potent, star player in hopes of making good on championship aspirations. (Yes, I am comparing the sale of BlackBerry’s patent portfolio to the Jets’ courtship of Aaron Rodgers.)
For the purchasers of BlackBerry’s portfolio, the challenge laying ahead is an obvious one. Even though it could be argued that they got the portfolio at a fire-sale guaranteed price, at least relative to the number of patents purchased and their pedigree, the universe of willing licensees in the consumer products space remains vanishingly small. Just look at the struggles faced by the licensing arms of BlackBerry competitors Ericsson and Nokia for a taste of what BlackBerry’s new owners may need to contend with in their upcoming licensing discussions.
It is not hard to predict, for example, that potential licensees may elect to pursue the same approach as Facebook did when it took on BlackBerry, when it refused to license until it was both sued and had put the asserted patents to the test. Still, the new owners should have enough artillery in their arsenal to unleash a patent barrage against even the most dogged defendant. From the outside, watching the upcoming battles should be a lot of fun, even as current BlackBerry investors are forced to sweat out the possibility that a large chunk of the patent sale revenues for the company may take some time to come in the door, if ever.
One thing that was interesting about the sale was that BlackBerry retained over 100 patent families in the deal. While details about why those families were retained have escaped me, I also think it safe to presume that at least some of those assets may have been retained to give BlackBerry the option of going after licensees itself. Whether that effort would be in support of the new buyers — or just a way for BlackBerry to get some more licensing revenue in case the new buyers keep striking out — is something that bears watching if the speculation about BlackBerry acting as a patent plaintiff comes to fruition.
What is known is that BlackBerry’s own licensing revenue has declined, including in the past year, providing ample motivation for the company to pursue better results going forward. Another thing worth watching is what type of damages models we see in upcoming cases involving the BlackBerry patents, as well as whether potential licensees look to buy some of the patents in the BlackBerry sale as part of a licensing deal. In short, there are a lot of ways things can unfold going forward, which at a minimum, makes the news about the BlackBerry sale worthy of attention.
Ultimately, the importance of the sale of the BlackBerry portfolio will in large part be dictated by how well the portfolio performs in the hands of its new owners. For as long as I have been practicing patent litigation, the prevailing wisdom has been that companies do well by investing in developing robust patent portfolios on the idea that those portfolios could serve as a revenue source even if the company’s core business goes sideways in some fashion. In many ways, what happens going forward with the BlackBerry portfolio will serve as a test case of that theory in the minds of many. At the same time, there are only a handful of patent portfolios that have the depth and breadth of what Blackberry put together over the years. All that potential deserves a chance to shine, even as it can be argued that the degree of difficulty to achieve licensing riches has only increased with the passage of time. Still, the buyers deserve plaudits for being brave enough to restart the patent treasure hunt using BlackBerry assets — and for doing so on commercial terms that likely give them as good a chance for success as possible. Plenty of us will be watching to see how they do.
Please feel free to send comments or questions to me at email@example.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.
Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at firstname.lastname@example.org or follow him on Twitter: @gkroub.