Earlier this month we broke the story of how a large portfolio of Nokia patents had been acquired by Provenance Asset Group LLC, which is led by Dan McCurdy and Tim Lynch of Quatela Lynch McCurdy (QLM). Now, based on exclusive interviews with McCurdy and Nokia patent chief Ilkka Rahnasto, IAM can throw more light on what is a massive global deal and how Provenance plans to monetise the assets.
While the portfolio has approximately 4,000 US assets, the overall stockpile of IP changing hands is more than 12,000 individual patents in 4,500 families – with significant coverage in key European and Asian markets - making this one of the largest deals of the last five years.
The rights, which include assets from both Alcatel-Lucent (which Nokia acquired in 2016) and Nokia-Siemens (a joint venture which the Finnish company bought out in 2013), cover a broad range of technologies including telecoms, gaming, semiconductors, software, Wi-Fi and Internet of Things (IoT).
Nokia has been closely assessing its huge portfolio of assets since it bought Alcatel. That gave its already substantial arsenal a considerable boost, translating to more than 30,000 patent families. As the company started to look at how that might be streamlined they brought in Laura Quatela and Tim Lynch, who had launched an IP advisory business in 2014. Quatela had a close connection to the Alcatel portfolio having served as the company’s executive vice president of IP. McCurdy also has ties to part of the legacy business thanks to his time as president of IP at Lucent Technologies and Bell Labs (before Alcatel acquired it in 2006).
“Tim and Laura started working closely with Nokia to try to figure out what they were going to do with 100,000 patents that resulted from various combinations they had been through,” commented McCurdy. “Obviously that’s a lot more than any company needs for offensive or defensive purposes and so coming out of that they jointly devised an initiative that they called ‘patents as a service’.”
McCurdy was not involved in those initial discussions, having joined Quatela and Lynch in 2016 (the business was renamed Quatela Lynch McCurdy), but has played a key role in putting the deal together. McCurdy will serve as CEO of Provenance and sit on the board, while Lynch becomes President and Quatela, who was appointed Lenovo’s chief legal officer late last year, will serve as an adviser (she and Lynch will also sit on Provenance’s board). It’s clear that the triumvirate have managed to use their deep knowledge of the Alcatel portfolio and substantial industry experience (all have served in-house in major operating businesses) to get the Nokia deal done. The new entity is separate to QLM which will continue to operate independently.
Provenance is due to pick only the highest quality patents, which it refers to as “litigation grade”, and make them available only to operating companies who are looking to bolster their IP holdings for defensive purposes. In other words, they’re not selling these assets to NPEs. Only a tiny slither of the patents are likely to make the grade — McCurdy estimated it to be between 2% and 3% of the portfolio — and the remainder will be offered for purchase. That sales process is likely to begin in the spring of next year once the entire portfolio has been thoroughly vetted.
Companies looking for freedom to operate, particularly in a new sector, and to protect themselves from infringement suits filed by market incumbents, will be able to buy a licence to a patent family, or a ‘slice’, which can only be used against a single, named opponent for defensive purposes. “We can therefore take the same patent and license it to multiple companies with each of them restricted in their ability to enforce only against a single entity,” McCurdy remarked. In another twist that is sure to keep in-house strategists on their toes, a company may also look to acquire a slice if they want to prevent a rival from acquiring it and using it as an IP shield.
Provenance will charge $100,000 per year, per slice, but if a business wants to acquire the exclusive rights to a patent it will cost $500,000. “Our belief is that multiple parties can take the slice that they need and therefore the cost is much more reasonable than if each party had to go and acquire patents of this quality, if they could even find them,” McCurdy added. If a company is then sued, those slices could potentially be used in counter-suits, with Provenance prepared to join a case, as what McCurdy calls a “procedural plaintiff”, so that the company does not have a standing issue.
For Provenance and Nokia this new approach reflects one of the current trends in the patent market. “There’s an active market around operating companies who need patents and in particular small and mid-sized companies that are targeting aggressive growth,” Rahnasto said. As he pointed out, it can take years and a lot of investment for those businesses to develop their own portfolios, so instead they now have the option of turning to Provenance to bolster their level of IP protection.
Along with that dynamic, McCurdy also pointed out the inherent problems caused by parties often spending millions on prosecuting and maintaining their own patents and keeping huge portfolios largely for defensive purposes and to keep up with competitors. “What we started to realise is that it’s a really inefficient process, particularly for defence, because somewhere between 1% and 3% of all patents that are granted are powerful enough to be used for any offensive or defensive purpose,” he said. “And we asked ourselves what other industrial process could survive a 97% or 98% loss rate in production?”
McCurdy added: “By combining great assets from companies that have far too many of them, what we call ‘the most select of the most select’ could be made available to operating companies who are trying to defend themselves from other operating businesses.”
To fund the day-to-day operations Provenance has raised $40 million from the strategic investment group of Chicago-based alternative asset manager GCM Grosvenor, in a clear sign that investment capital is eyeing opportunities in the IP space. It has also added Linda Biel as senior vice president of client development - she previously worked with McCurdy at AST.
Along with the Nokia assets Provenance is looking to acquire additional patents, with McCurdy indicating that there are other deals in the pipeline. Those selling assets to Provenance will be entitled to a percentage of the company’s revenues, which will be paid out on a quarterly basis. “That allows everyone to share in what we think is significantly increased value by virtue of the combination of the patents,” McCurdy asserted. “If the model works then for every patent that we select as litigation quality, a company could readily expect more than $1 million over the life of each patent, given the share that they have.”
From the Nokia perspective it is notable that as it looks to slim down its hefty portfolio it has turned to a business focused on IP value creation through a defensive strategy, rather than a patent assertion vehicle. In the past, the company has been a particularly active seller to the NPE community, striking privateering deals with the likes of Acacia and Conversant. Those transactions have met with varying degrees of success and have generated a fair amount of opprobrium from some parts of the IP community who have criticised what they see as the feeding a destructive part of the market.
That Nokia has opted to do this deal with Provenance reflects the much tougher conditions for assertion-based licensing and where the opportunities increasingly lie for those looking to sell assets. “We have seen that the current market opportunity is around operating companies that want to build their own portfolios,” Rahnasto commented. This is not the only portfolio that Nokia has put on the chopping block, with a portfolio of more than 6,000 assets currently being sold by AQUA Licensing.
Determining the size of the opportunity for Provenance is not particularly straightforward — after all the assertion market is known for its opacity. McCurdy pointed out however that for every litigation case between operating companies, there are estimated to be at least 10 and possibly 20 assertions that don’t reach a courtroom. “Every one of those represent an opportunity, so say there were only 400 relevant litigations in a year then, if it’s 10 assertions per case that means there are 4,000 opportunities,” McCurdy said. “So even if we get 10% of the market it’s still huge.”