Nortel’s patent portfolio was recently sold for a whopping $4.5 Billion to a consortium comprising Microsoft, Apple, EMC, RIM Sony and Ericsson. According to a recent Bloomberg article “The sale marks a watershed in the maturity of intellectual property markets and a dramatic shift in strategy for technology companies. Suddenly these companies are acknowledging that patents are a strategic asset worth billions” (www.bloomberg.com/news/2011-07-20/patent...)
Different numbers are floating around for the price per patent - ranging from $750,000 per patent to $2.25MM per patent. The $750,000 amount is based on reports that the size portfolio was approximately 6,000 assets. However consensus within the patent community is that 2,000 is a more realistic number, which brings the price per patent to $2.25 MM. (gametimeip.com/2011/07/05/how-do-the-nor.../).
Now consider ParkerVision Inc. (ParkerVision). ParkerVision is engaged in designing, developing, and selling radio frequency (NYSE:RF) technologies and products for mobile communication products. Their business includes licensing its intellectual property and/or the sale of semiconductor integrated circuits based on its technology for incorporation into devices designed by its customers notably the major mobile device and handset makers. To date the company has not succeeded in generating sizeable revenues from selling its semiconductor integrated circuits - their patent portfolio however has faired much better.
ParkerVision owns a portfolio of approximately 120 active US patents. Most of the US patents have multiple patent foreign counterparts in Asia and Europe. Further they have approximately 45 published patent applications queued up with the US Patent & Trademark Office. While there is no certainty that an application will all be granted a patent; based on ParkerVision’s extensive patent prosecution know-how and history there is a fair probability that most of the applications will be granted.
Following a similar path as other innovative companies, ParkerVision could potentially be more successful in monetizing its intellectual assets. Interestingly, more focus is being placed on a company’s patents, e.g. InterDigital, Inc. “due to the substantial increase in the value of intellectual property to major mobile communications companies, the Board believes it is an appropriate time to explore potential strategic options that may enhance shareholder value” (www.reuters.com/finance/stocks/IDCC.O/ke...). Given the premise that the intrinsic value of ParkerVision resides in its intellectual property, what then would the value be of its patent portfolio and how does it compare to its current market capitalization?
Let’s return to the Nortel patent transaction. At the low end of the price per patent spectrum ($750,000 per patent) ParkerVision’s portfolio of approximately 120 patents represents about $90 MM or 2.3 X their current $38.5 market cap. At the high end of $2.25MM per patent the ParkerVision valuation approaches $270MM or approximately 7 X the $38.5 Million market cap. These may appear as very large numbers however patents that are determined as essential patents for mobile communications have significant value. Any entity shipping products or delivering services that uses essential patents is infringing and requires a license (recall RIM’s $612MM litigation settlement) .
There is no guarantee that ParkerVision’ s patent portfolio would achieve such a high valuation, however given ParkerVision’s history of successful patent prosecution, the size of its patent portfolio and recent industry related IP transactions suggests that ParkerVision’s current price of approximately $0.60 per share appears undervalued. Using the Nortel auction data as a guide and using a midpoint 4.5X multiplier results in a share price in the range of $2.70. Of course if ParkerVision eventually succeeds in launching its technology/products into mobile handsets, incremental revenues from licensing and/or product sales would be the icing on the cake.
Disclosure: IAR is long on PRKR