Yahoo, Verizon Deal Clears Way for Patent Sale

July 25, 2016, 9:42 PM

By Joseph Marks, Bloomberg BNA

Yahoo’s sale of its core internet business to Verizon on Monday opens the door for the company’s next major step — the sale of more than 3,000 granted and pending patents covering e-commerce, search and other components of the modern web.

Bidders for the patent package include a mix of operating companies and those interested in monetizing the patents through licensing, according to people familiar with the process.

Yahoo is also holding out the possibility of monetizing the patents itself through a licensing campaign, a spokeswoman told Bloomberg BNA. If that happens, the patents will stay with the portion of Yahoo’s business that Verizon did not purchase — named RemainCo. In addition to the non-core patents, RemainCo. includes Yahoo Japan Corp. and the company’s equity interest in Chinese e-commerce giant Alibaba Ltd.

Verizon will receive a license to all of the patents regardless of whether Yahoo sells or licenses them, the spokeswoman said.

Yahoo sold its web business to Verizon for $4.8 billion after a lengthy bidding process. The deal included about 500 issued and 600 pending U.S. patents and roughly 1,000 foreign equivalents of those patents related to Yahoo’s core business.

The company’s non-core patents were spun into a subsidiary named Excalibur IP LLC, and Yahoo announced it was accepting bids for the patent package June 7.

Fewer than 10 Bidders Remain.

There are fewer than 10 active bidders for the patent package now, whittled down from about three times that many after Yahoo first announced the patents were for sale, people familiar with the process said. Bidders include both standalone firms and consortia, and operate in the U.S., Europe and Asia, they said.

The investment bank Blackstone IP LLC is managing the patent sale for Yahoo. The firm expects to close a deal before the end of September, sources said.

The Excalibur sale was delayed until Yahoo’s core business was sold in case the company received a competitive bid for both the patents and the core business, they said.

Bidders have two main interests in the patents, sources said. Some want to make money by licensing them to other firms. Others want to insulate themselves against demands for licenses or lawsuits or to renegotiate licensing fees they’re currently paying to companies in related industries.

Value Unclear.

Analysts have pegged the value of the patent portfolio anywhere from $4 billion to significantly less than $1 billion. Because the Excalibur portfolio may include patent applications that aren’t yet public, it’s extremely difficult for analysts not involved in the negotiations to confidently assign a value, Maulin Shah, managing attorney with the patent valuation firm Envision IP LLC, who analyzed the value of Yahoo’s patent portfolio in April, said.

Many of the patents cover core internet technology, such as online payment systems, which could provide insulation for a consortium of startups or for foreign firms entering the U.S. market that are wary of being charged hefty licensing fees, analysts said.

At the same time, software patents have become increasingly difficult to enforce in court following the 2011 America Invents Act and the Supreme Court’s 2014 ruling inAlice v. CLS Bank, which resulted in many software patents being thrown out.

Many top tech firms also already have cross-licensing deals with Yahoo, so a firm purchasing the patents would face barriers to monetizing them.

That makes it likely the ultimate buyer will be more interested in using the patents for defensive cover than turning a profit from licenses, Matt Larson, a technology litigation analyst with Bloomberg Intelligence, said. Likely purchasers include sovereign wealth funds looking to provide an inroad for national companies in the U.S. market, or a consortia of large tech firms that wants to ensure the patents don’t fall into the hands of aggressive licensers, referred to derisively as patent trolls, he said.

To contact the reporter on this story: Joseph Marks at jmarks@bna.com

To contact the editor responsible for this story: Mike Wilczek at mwilczek@bna.com

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