Over the last couple of years Uber has emerged as one of the leading corporate players in the secondary patent market. Having hired former Motorola and Google IP executive Kurt Brasch in 2016, the ride-sharing company significantly ramped up its buying activities, picking up assets from the likes of AT&T, HP Enterprise and, most recently, from Microsoft. You can see a deep dive into Uber’s patent position from our data specialist Tim Au here.
With a mandate to acquire assets in a market widely seen as particularly friendly to buyers, it might appear that the mandate that Brasch and his colleagues had would be relatively simple to pursue. However, in this guest post for the IAM blog, Brasch and his colleague, Jay Choi, explain why it was anything but straightforward.
With Uber being an active patent buyer in a buyer’s market this past year, we thought that growing our portfolio through acquisitions would be easy. Not so. Navigating the market to find quality assets is always a challenge. And for at least the first half of 2017, though it seemed as if more assets were available, we felt that they were of low quality or at least of low relevance to Uber. But our 2017 journey allowed us to evolve a very deliberate approach that takes advantage of automated patent analysis tools, deep subject matter expertise and straightforward negotiation style.
While others in a similar position to Uber have focused on quantity (ie, buying bulk to make their portfolio look bigger quickly), we made the decision to focus on quality. We looked at the pros and the cons of both strategies and felt that the incremental costs of maintaining a larger portfolio, both in purchase and maintenance, was not in our best interests. Early on, we almost exclusively searched for quality patents in our core business areas, before more recently opening up to a broader range of patents outside of Uber’s core technology. We believe the portfolio’s depth in our areas of business and breadth across a range of other technologies leaves Uber well positioned to continue our strong pace of innovation and defend ourselves, if necessary.
And while we are not done, our targeted purchasing campaign over the past year is winding down, while we continue to invest in protecting our innovations through our organic patent programme.
How we do it
The first obvious step in acquiring third party patents is to identify portfolios that are available for sale, and even patents that aren’t specifically listed for sale. We felt there was an opportunity to explore beyond the traditional ways to identify available assets (which we also use) – eg, business connections, brokers and IP transactions websites. So, we developed our own acquisition portal to directly solicit assets, speed our team’s analysis and provide Uber with protection against third party patent threats cloaked as purchase opportunities.
Every company has its own process for assessing investment opportunities, including vetting patents available for sale in the secondary market. Due to the sheer volume of portfolios and patent assets that are presented to Uber, we needed an efficient review strategy.
Although Uber is a multi-billion-dollar technology company, our IP team is a modest-sized group with limited time and resources. Being a technology company, we turned to the world of data science to expedite our search for quality assets.
Prior to manual review of any patents, we run each offered portfolio through analysis software that implements our defined methodology to identify relevant families and the best claim from the highest-ranked patent in each family. To do this, our team partnered with David Andrews at Legal Analytics to create machine-learning models for individual technology areas we are interested in (eg, a model for ridesharing, a model for map services, etc).
Running the portfolio through the models results in a ranking of patents for each individual technology area. Our automated analysis enables us to set aside the thousands of patents lacking in quality or relevance and focus our limited resources on a much smaller number of patents with the potential to add value to our portfolio.
We assign each of the remaining portfolios to one of the groups within our IP team that has a thorough understanding of the sector of Uber’s business potentially related to the portfolio. The group engages daily on IP issues related to the company’s current products and services or future developments in that sector, and accordingly can better identify quality portfolios for that sector.
For Uber, a quality patent is one that has applicability in an identified area of technology, reasonably broad claim scope and an early priority date as compared to known technologies. By whittling down the number of patents at the outset, the group can concentrate on applying their sector expertise to thoroughly scrutinise claim breadth, validity, patent term, assignment information, sale price expectation, etc.
While our process may be far from perfect, it has allowed us to review hundreds of portfolios efficiently and to find quality patents. Once we identify a portfolio we like, it is on to the the next step.
Negotiating a patent deal can be very complex. Buyers’ and sellers’ initial offers often vary by a factor of 10. Narrowing that gap is often difficult, as reliable pricing information is so hard to obtain.
In order for either side to listen to arguments leading to a compromise, it is essential that they develop a good relationship in advance of any negotiations. We prefer to do this prior to identifying patents for purchase. How? By opening up channels of communication with brokers and known sellers.
Often, operating companies avoid these conversations, fearing the “sales pitch”. However, good brokers know how to manage the relationship as well. These early discussions can provide a lot of information on whether this is a broker/seller or operating company (if you are a seller or broker) that your entity would want to engage. We have seen these good relationships drastically shorten negotiation cycle times and yield win/win arrangements.
During negotiations, it is important for both sides to be open and honest. Certainly, neither side should tell the other their floor or ceiling pricing; but all other aspects of the deal should be discussed openly (eg, why the patents are important, how they will be used or shouldn’t be used, potential pitfalls, contractual issues, if one side feels the other side is negotiating unfairly, etc).
When both sides are honest and transparent about their concerns and feelings, the trust factor does not break down. Losing trust can not only be a death blow to the deal, but can also detrimentally affect any future opportunities to work together.
As each side provides an offer, we need to understand what that offer tells the other side. Normally, by the second counter-offer, we can tell approximately where the other party wants to land. And we have to be smart enough to know that our second offer is telling the other side the same thing. We have worked with other parties who seem to think that it is a game until they get to their hoped for price. But it is not a game. Negotiators should always have a justification for the offers they present.
What we are looking for is an amount that both sides are happy with. Certainly, we need to get to a price that our business case justifies. That is mandatory and our job. But we do not want to force a deal on the other side if that isn’t acceptable to them. Our goal is to get to a deal that is not only acceptable to us, but is also a win for the seller/broker. Doing so leaves both parties satisfied and opens the door for future opportunities.
When you negotiate in bad faith, not only is it nonproductive, but it also leaves a very bad taste in the other side’s mouth. And that “bad taste” doesn’t just stay in its mouth, it is communicated to others in the industry. There are some bad actors in this space, some that we have dealt with, some that we have only heard about. And we just won’t do business with them.
The last piece of the negotiation is the agreement, which is another reason why deals take so long to finalise or why they completely fall apart. Obviously, the agreement is there to protect the interests of both sides. But too often, both sides litter it with terms that will probably never come into play. That isn’t to say that either side should give up important protections, but they should perform risk/reward analysis on contentious issues (eg, reps and warranties, limitation of damages, etc).
Overall, the patent market can be difficult to navigate. But through trial and error, we’ve learned some good techniques that have made it easier not only for Uber, but also for the parties with which we have engaged.
The most important things to be aware of: complete your due diligence and business case, build relationships and communicate open and honestly, and focus on what is important to your company. Deals are much easier when you do so.