By Scott Graham, From The Recorder

At publicly traded patent licensing companies, the rich are getting richer and the poor are getting shaken out.

While giants like Interdigital Inc., Tessera Technologies Inc. and Rambus Inc. are having banner years, several smaller public nonpracticing entities are warning that they’re running out of operating cash and are being threatened with delisting from Nasdaq.

A $500 million company just one year ago, Florida-based ParkerVision Inc. saw its already shrunken market capitalization plunge to about $35 million on May 8 following appellate arguments in its case against Qualcomm Inc. ParkerVision holds $8 million in cash, which “will not be sufficient to sustain our operations through 2015,” the company stated in its March annual report.

Inventergy Inc., a Silicon Valley patent holding company founded by former Hewlett-Packard Co. licensing chief Joe Beyers, has seen its stock price drop from $4 last summer to 30 cents as of May 21. The company struck its first licensing deal in February, but it may be too little, too late absent additional investment. Inventergy is down to $2.3 million in cash, according to a May filing with the U.S. Securities and Exchange Commission, enough to last only the next five months.

IP analysts say that the business environment has become more challenging for all patent-monetization companies since the America Invents Act ushered in inter partes review, the U.S. Court of Appeals for the Federal Circuit scaled back damages law, and the U.S. Supreme Court reset the rules of fee shifting and patent eligibility. That’s emboldened more operating companies to reject licensing demands and take their chances in court, adding time, expense and risk that some licensing companies may not have factored into their business plans.

“There’s been a tectonic shift” in the economics of patent monetization over the past few years, said Robert Aronoff, managing partner of intellectual property advisory firm Pluritas. “For better or worse, a lot of those business models were designed to succeed with certain assumptions, and the world has changed.”

There are exceptions such as Unwired Planet Inc., a small licensing company that holds $83 million of working capital on its balance sheet. But generally speaking, Aronoff said, “the smaller the play, the less capital they raised, the more vulnerable they are to the tactics the potential licensees now have at their disposal.”

“It’s an increasingly dark investment landscape for IP cases,” agrees Ronald Epstein, CEO of Epicenter IP Group, an adviser to patent holders. That includes litigators, who are increasingly reluctant to work on a contingency-fee basis, he said. And if Congress passes a loser-pays fee-shifting provision as outlined in House legislation, “what money there is will absolutely disappear.”

That may please operating companies that face frequent accusations of infringement, but in Epstein’s view it will render vast numbers of patents, both good ones and bad ones, effectively unenforceable. “It’s like there’s been a global warming event in patent law,” he said, “and all the patents that aren’t on the highest peaks have drowned.”

In the meantime, some publicly traded IP companies, also known as PIPCOs, face difficult decisions. Analysts see mergers as a possibility in the right set of circumstances. Opinion is divided as to the value a typical PIPCO portfolio would have in a liquidation.

‘SOMETHING REVOLUTIONARY’

ParkerVision was founded in 1989 to develop radio-frequency technology. The company has plowed some $200 million into research and development, accumulating a deficit of $313 million, according to its most recent annual report.

In 2013 ParkerVision appeared to have recouped a big chunk of that investment, obtaining a $173 million patent infringement verdict against Qualcomm in Florida federal court. The company says it pitched its invention for a more energy-efficient wireless receiver to Qualcomm in 1998. Qualcomm personnel recognized it as “something revolutionary,” but after license negotiations broke down the company simply stole the technology, ParkerVision alleges.

A jury agreed, though as noted at the time by Ars Technica, even the $173 million award came as something of a disappointment to investors. So when U.S. District Judge Roy Dalton threw out the award last year, saying Qualcomm did not infringe, the company’s market cap plummeted from about $500 million to $150 million in a single day. Then in December the Patent Trial and Appeal Board granted RPX Corp.’s request for inter partes review of several patents involved in the case. By early May the company’s value had drifted down to about $70 million.

Hopes were high when Finnegan, Henderson, Farabow, Garrett & Dunner partner Donald Dunner presented the company’s appeal to the Federal Circuit on May 8. But the three-judge panel sounded skeptical from the start, and the share price dropped from 66 cents to 39 cents that same day, leaving the company worth about $36 million.

“I can remember personally walking out of that courtroom, looking at my phone, looking at the stock price,” CEO Jeff Parker said on an earnings call two days later. “I walked out literally a minute or two [after] it was over and the stock price was already down.” He said he thought it was a mistake to draw conclusions from the court’s questioning.

ParkerVision hasn’t brought many lawsuits. Last year it filed only its second, targeting Qualcomm, HTC and Samsung. The company also contracted out its licensing to 3LP Advisors last year but so far hasn’t seen any revenue. “Companies who we think should either take out a license or who should enter into some kind of product business relationship with us or both are candidly waiting to see do they have to,” Parker said, according to a transcript of the call posted on Seeking Alpha.

He vowed a tougher enforcement campaign going forward. The company obtained $7 million from litigation-finance company 1624 LLC in December for future litigation and has “started a dialogue” with the company’s current trial counsel at ­McKool Smith about “additional financial accommodations.”

OTHER COMPANIES’ IP

Inventergy was founded by former Hewlett-Packard licensing executive Beyers in 2012 with an eye to monetizing other tech companies’ intellectual property. “Beyond creating value for IP, we also hope to create a more businesslike model of IP monetization—one without extreme ‘troll-like’ behavior,” Beyers told The Recorder last year.

The company went public in December 2013 by acquiring eOn Communications Corp. in a reverse merger. A month later it acquired 500 patents covering 3G and 4G technology from Panasonic, adding to telecom infrastructure patents it holds from Huawei and Nokia.

At first Wall Street loved the idea, bidding up shares from $2.25 before the merger announcement to $14 by March. By the time the merger was completed in June, share prices had already started to sag. Last fall Beyers wrote an open letter to shareholders about “what we believe to be a low current stock price”—at the time $1.30—and foreswore any salary until the company began generating licensing revenue.

Inventergy struck its first deal in February: $2 million over five years from a “midtier telecommunications technology company” for licenses to the Huawei and Nokia patents. But that hasn’t stopped the slide in share price, which now sits at 30 cents. Nasdaq has warned that it will delist the company as soon as June 29 if it doesn’t get its share price above $1.

It’s clear the company has encountered a more challenging licensing landscape than it anticipated. In his shareholder letter Beyers described a goal of one year for first revenue from each newly acquired patent portfolio. By that measure the Panasonic campaign would be well behind schedule.

Earlier this year Inventergy was sued for a declaratory judgment by Sonus Networks Inc. The complaint details a lengthy and so far futile licensing effort comprising some 35 emails, 10 phone calls and a series of in-person meetings between Sonus and Inventergy executives, including Beyers and general counsel Wayne Sobon. The campaign stretches back to summer 2013, with Inventergy seeking as much as $97 million, according to the Sonus complaint in the Northern District of California.

Sobon, who is the immediate past president of the American Intellectual Property Law Association, described what he called a distressing trend in IP law at a speech to the World IP Forum in January. “Something big has changed in the last few years,” said Sobon, who emphasized that he was speaking only for himself and not for Inventergy. “Even when a CEO or chief technologist is willing to acknowledge his firm’s need to take a license, in most cases today the general counsel or the company’s outside law firm will shut down the negotiation and advise the CEO to ‘wait until you’re sued’ before discussing anything.”

In an email, he noted the company “closed a multimillion-dollar licensing deal earlier this year and [we] remain focused on our key licensing programs and discussions with other potential licensees. Whatever changes in the legal landscape, we continue to strive to obtain good value in the licensing of our patent portfolios.”

Inventergy secured $11 million in financing—$10 million in debt, $1 million in restricted stock—from Fortress Investment Group last fall. Fortress agreed to advance an additional $3 million against future license payments in February.

LOOKING FOR BREATHING ROOM

A month ago, telecom patent holding company Vringo Inc. seemed to be in similar straits as ParkerVision and Inventergy. After getting walloped by a Federal Circuit decision last summer, it warned of “substantial doubt about our ability to continue as a going concern”—securities-speak for the ability to fund operations for the next 12 months.

But New York-based Vringo, which has had some litigation success overseas, announced $12.5 million in additional investment on May 4 and filed its cert petition with the Supreme Court 10 days later. The company continues to trade for about one-fifth of its value a year ago, but says it now has ample cash to get through another year.The May 4 announcement did not buoy the stock price, which remains in the 60 to 80 cents range, but it gives Vringo breathing room to continue pursuing enforcement of other patents and to see if the Supreme Court will grant its cert petition—unlikely but not impossible given a vigorous dissenting opinion at the Federal Circuit.

“Vringo operates in a high-risk asset class and we have never been shy about discussing the upside and downside of potential outcomes and events,” Vringo CEO Andrew Perlman said in an emailed statement. “I believe our recent financing, in a period of high volatility for our company and the IP sector, demonstrates the level of respect we have achieved from certain investors because of our matter-of-fact approach.”It’s hard to say what will happen if PIPCOs ultimately can’t meet their financial obligations. Kent Richardson of IP advisory firm Richardson Oliver Group said that, in general, patent portfolios of nonpracticing entities tend to be battle-hardened through continuations or re-examinations. If the right telecom patents were to come on the market in a liquidation, it could be an opportunity for “patent have-nots” such as the newer Asian smartphone players to “change the balance of payments discussion with the patent haves.”

Maulin Shah of Envision IP agreed in principle, but noted that patents on communications technology can become outdated quickly. He pointed to Alcatel-Lucent as an example of a company that’s had a difficult time monetizing its patents over the last five years as communications continued to evolve from cables to wireless.

Shah and Aronoff see mergers as a possibility, if the right synergies can be found between portfolios. That may be the best hope for remaining viable until the pendulum swings back in favor of patent holders, Aronoff says.

“The business model may have long term value once the dust settles in a few years,” Aronoff said. “But this generation of vehicles need to figure out a solution, and quickly.”

IMAGE: Joe Beyers, Inventergy founder Jason Doiy / The Recorder

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