04 JUN 15
Richard Lloyd

A patents deal market desperately trying to rediscover some of its 2011 mojo this week witnessed WiLAN’s $33 million acquisition of the former Qimonda portfolio from Infineon Technologies. The portfolio covers a range of technologies including DRAM, FLASH memory and semiconductor processes and manufacturing.

Although the price tag didn’t come close to the multi-billion dollar deals struck four years ago for the Nortel or Motorola Mobility portfolio (the latter involved the whole business but the buyer Google was most interested in the 17,000 patents), the sheer size of the deal, at 7000 granted patents and applications, certainly meant that the transaction caught the eye.

So too did the news that WiLAN has already signed a licensing deal for the portfolio with Samsung. Having announced both agreements, the Canadian NPE immediately revised its revenue guidance for the second quarter from at least $18.3 million to in excess of $34 million. Although he would not reveal how much of that jump was accounted for by Samsung, CEO Jim Skippen admitted, in an exclusive interview with IAM, that the majority was due to the deal with the Korean conglomerate. Skippen also revealed that he expected the portfolio to realise around $100 million in revenues over its lifecycle.

There’s a long and fairly public backstory to this deal. Qimonda, a 2006 spin off from Infineon (which itself spun out of Siemens in 1999), entered into bankruptcy in 2009. The company’s German insolvency administrator sought to monetise its patent portfolio, but given the existing encumbrances on many of the assets, which had been the subject of licensing deals struck by Qimonda, Infineon and Siemens, also tried to back out of some of those licensing agreements through the bankruptcy proceedings.

Courts in the US eventually concluded that that was not possible, leaving the licences in place. Then, in 2013 MOSAID (since re-named Conversant) announced that it had signed a memorandum of understanding with Qimonda. However a definitive agreement was never signed and, as this blog pointed out at the time, one of the concerns of potential buyers in the market was the level of encumbrances on the patents. Instead, the portfolio was picked up by Infineon for €125 million in September last year as the company reached a partial settlement with Qimonda over legal proceedings launched as part of the latter’s bankruptcy.

Although WiLAN had been aware of a possible deal for the patents when Qimonda originally entered bankruptcy, Skippen explained, the Infineon deal was the spark for stepping in and putting a deal together. That was partly helped by existing ties between the two. Skippen, for instance, had done deals with Infineon stretching back to when it was part of Siemens and he was at MOSAID, and WiLAN had since agreed a licensing deal with the German company and bought some biometric patents from it.

Skippen described the attraction of the portfolio as: “Its broad applicability to a significant portion of the semi-conductor sector in a number of areas, its good pedigree and its depth in process technology which we currently don’t have.” He admitted that there were a number of encumbrances on the portfolio but despite those it still “represented fairly good value”.

One of those legacy licences was with Samsung Electronics, but WiLAN was able to strike the new deal to cover a much wider range of the company’s businesses. “Even with the encumbrances on the portfolio, Samsung saw value in making sure they had additional coverage for others parts of their business,” Skippen commented. That would therefore suggest that there are significant monetisation opportunities despite the existing licences.

But perhaps the most surprising element of this deal is not its size, nor the history of the portfolio, nor the fact that it has taken place in a fairly moribund patent market. Instead, it’s the fact that this is not the sort of deal that WiLAN is supposed to be doing. A little over a year ago the NPE announced the results of a strategic review after it had undergone a number of struggles (including a tough court case against Apple), seen its share price fall and had considered a complete disposal of the company.

Resolving to remain independent, Skippen told investors that they would look to slim down the NPE’s patent portfolio by as much as 2,000 patents (it stood at 4,500 at the time) and would look to do privateering style deals with operating companies in which WiLAN would take on the licensing of large groups of assets and both sides would benefit from any resulting upside.

Skippen admitted that the Qimonda deal was “a little bit outside” of this revised plan, but insisted that it would not significantly alter the NPE’s chosen course. “This deal doesn’t change the main thrust of our strategy,” he said. Instead, the acquired portfolio appears to fall into the too-good-to-miss category with a valuation that seven or eight years ago, in a much frothier marker, might have been far higher. Investor reaction was certainly positive – with the WiLAN stock price rising around 14% on 2nd June, the day the deal was announced.

With the continued uncertainty in the market caused by recent court decisions and proposed patent legislation, the question is whether WiLAN has bought at the bottom of the market. Last month we reported on a significant uptick in sales for the first quarter of 2015, although as we pointed out there hasn’t been a corresponding rise in prices. What WiLAN paid for the Qimonda portfolio would seem to suggest that valuations remain depressed. It still might be some time before anyone is partying like it’s 2011.