Cash in your chips

A new kind of broker helps companies swap unused patents. You could be sitting on a jackpot

Mosaid Technologies is one of those companies whose business you can never quite remember. For a long time, Ottawa-based Mosaid was a fabless semiconductor maker, engineering chip designs that it sold to manufacturers, but not fabricating the chips themselves (hence “fabless”). In 2003, however, the company announced it was shutting down its semiconductor division, a disastrous money-loser. Instead, it shifted focus to selling test systems to other fabless semiconductor makers.

What Mosaid did not ditch, however, was its large portfolio of highly valuable patents.

It uses those patents in two ways: first, to design smaller building blocks for chip companies; and second, as the focal point of a thriving patent licensing business. It's Jim Skippen's job, as Mosaid's senior vice-president in charge of patent licensing, to chase after chip manufacturers that infringe on its patents. As he puts it: “What licensing is all about is going to someone in sort of a nice way and saying, 'Look, you really need to take a licence for our products because you're already using them. And if you don't take a licence, we may have to, unfortunately, sue you.'” Philips Electronics, for instance, agreed to license Mosaid's patent portfolio early last year; Samsung is currently the focus of a protracted court battle. But Mosaid is now the largest patent licensor in Canada, generating more revenue from licensing than any other company–$125 million since 1999.

Having the right patents, and knowing how to use them, has become a key strategic tool for tech companies. It can be a source of revenue, as with Mosaid, or a matter of defence. “Often the best way to prevent someone from coming after you,” says Skippen, “is if you have something good to go after them with.”

Not surprisingly, that means there's lots of opportunity for buying and selling patents–and for middlemen to make money. Little wonder patent brokerages are popping up all over the place. “It's really coming into being in a big way,” says Skippen.

Ottawa-based Semiconductor Insights is one of those brokerages. Founded in 1989, it's already a leading reverse-engineering firm in the microelectronics industry, performing technical analysis for competitive intelligence and helping companies prove patent claims for licensing or litigation. “We aren't lawyers and we don't offer legal opinions,” says Doug Smeaton, who has been CEO since 1992, “but we help to bridge that domain of patent law and technology.” The 150-person company boasts 47 of the top 50 semiconductor companies in the world as clients, including Intel, Texas Instruments and Motorola.

That gives Semiconductor Insights a unique view into the secretive patent marketplace. Smeaton launched the brokerage business last summer, after realizing how much intellectual property was sitting on the sidelines. He estimates that, globally, some 20% or 30% of the almost five million active patents are in limbo and could be of more value at another company. According to estimates by McKinsey & Co., 150,000 patents change corporate hands every year in the electronics industry alone. No one knows for sure–it's all very cloak-and-dagger, since it's better for both buyers and sellers to remain anonymous until the deal is done.

The sellers tend to be companies with patents that are no longer core to their business. Shifting corporate priorities mean projects get mothballed, divisions are shut down and acquisitions are made. Suddenly, maintaining what would otherwise be valuable intellectual property and defending it against infringements becomes a drain on resources.

But finding just the right buyer takes time, discretion and onerous due diligence–both technical and legal–to prove a patent's legitimacy and value. With Semiconductor Insights' expertise in reverse engineering, it can thoroughly assess and validate the technology's legal standing, and then prepare a marketing package. A decent but basic patent might go for tens of thousands of dollars, while something more fundamental to an industry could warrant a bid of several million. Semiconductor Insights, of course, gets a percentage–although Smeaton will only say it “runs into the two digits.”

Smeaton's brokerage business is still fledgling–he says the number of deals it has completed can be “counted on one hand without using many fingers at this stage”–but he's optimistic it will grow quickly.

Skippen agrees. “There is a market for good quality patents,” he says. He should know: Mosaid could soon be a buyer. “We're starting to explore the possibility of acquiring patents,” says Skippen, “either to bolster our licensing program in the markets that we're in now or to expand to new markets.” No doubt Smeaton will be in touch soon.