Yesterday, Technicolor told investors that it is negotiating a “strategic transaction” relating to its patent licensing business. In a subsequent call with analysts, CEO Frederic Rose suggested that that transaction would take the shape of an outright sale of the company’s patent licensing business to an unnamed buyer. The news means a major corporate player is getting out of the licensing game, and it also signals an uncertain future for one of Europe’s top in-house licensing teams, currently led by Deirdre Leane.
The discussions are at a sufficiently advanced stage that Technicolor has suspended all ongoing licence negotiations. That is why the French company had to tell investors now – its IP business is going to generate significantly less cash flow by year-end than expected. If all goes as planned, the new owner of Technicolor’s portfolio will be resuming talks with those prospective licencees after the deal closes sometime in 2018.
Samsung will not be among those prospective licencees, as Rose also announced a settlement of French and German litigation against the Korean smartphone maker. Technicolor will be keeping the royalty flow from that deal, Rose said, but it will provide an important data point in putting a price tag on the patent business as a whole.
The press release says the strategic deal will help simplify Technicolor’s corporate structure and allow it to re-allocate more capital and resources to its operating business. Rose acknowledged that Technicolor’s patent monetisation segment is a profitable business with a high-quality portfolio, but said that running it in parallel with a product business has become increasingly challenging. “We are seeing significant conflicts between our operating businesses and the interest of our patent licensing business vis a vis customers of the company”, Rose stated. The CEO also acknowledged to analysts that the volatile and lumpy nature of the patent business has impacted the quality of Technicolor’s financial communication as well as the group's overall valuation.
In view of those concerns, Rose says the executive team spent the past year weighing options, and has decided to pursue a deal that will “fairly value our licensing business while protecting the attractiveness and profitability of our operating business”. While he did not say when the decision had been reached, it is notable that chief IP officer Arvin Patel departed the company for TiVo in June of this year. Leane, who had been VP of licensing, subsequently took over the CIPO job.
On the details of the agreement and the identity of the possible buyer, Rose wouldn’t be drawn. He said the company had suspended its licensing activity because it would have “complicated tremendously” the strategic deal. A would-be buyer would have different negotiating objectives, different cross-licensing considerations and may even want to pursue things more aggressively, he suggested.
At one point Rose declined to say whether Technicolor is negotiating with one suitor or more than one. But he assured analysts that patent licensing activity would not be reflected in the company’s consolidated accounts at the end of 2018, saying: “We will enter into a strategic transaction, we are in advanced discussions, we believe we have a valuable asset, and we know there is more than one interested parties who will be looking at this”.
That being said, this all sounds somewhat similar to the surprise move announced by BlackBerry last month to outsource its patent licensing operations to Teletry, a company run by Kasim Alfalahi. While that agreement describes Teletry as having “sublicensing rights”, Rose made the Technicolor deal under negotiation sound much more like an outright sale. You would have to think that Alfalahi’s Marconi Group is a prime candidate in this case as well.
For shareholders to push for an offloading of the patent licensing business is a somewhat ironic reversal. Just a few years ago Technicolor executives were fighting off an activist shareholder, Vector Capital, which was demanding it explore divesting its product business to allocate more capital to IP operations. Rose emphatically rejected that approach, and in yesterday’s announcement signaled that he will steer the company in the exact opposite direction.
Along the way, Technicolor has been home to some of the biggest names in corporate IP – Béatrix de Russé, Boris Teksler and Stéphane Rougeot all preceded Patel in the CIPO role, and Laura Quatela serves on the company's board of directors. It remains to be seen how much of the current licensing team migrates along with the business. But a very valuable portfolio is almost certainly on the move.