Last April, Envision IP published an analysis of publicly traded patent holding companies (also known as Patent Assertion Entities, or PAEs) and their historical stock performance.
We updated our research to understand how these PAEs have fared over the last year, given a number of headwinds facing the patent monetization industry. In December 2013, the House of Representatives passed the Innovation Act which included a number of reforms affecting patent litigation by PAEs. Most notably, the bill calls for heightened pleading requirements, fee shifting, patent ownership transparency, and moving discovery to a later stage in litigation. The bill is now pending a vote in the Senate.
Subsequently, the Senate Judiciary Committee is set to debate the Patent Transparency and Improvements Act. While not as aggressive as the Innovation Act, this bill does include provisions for end-user protections and dealing with bad-faith demand letters, including FTC intervention.
There are also a number of other bills introduced in Congress as detailed by Matt Levy of Patent Progress.
In addition to proposed legislation which could potentially curb the PAE business model, recent Supreme Court decisions have already affected this industry. In a series of cases decided last week, Octane Fitness v. Icon Health & Fitness and Highmark v. Allcare Health Management Systems, the Supreme Court decided to ease standards by which a prevailing party in patent infringement cases may recoup court fees. These decisions are especially important to small businesses that are faced with the decision to pay a settlement, or rack up attorney fees, when faced with a patent troll threat.
Furthermore, in a decision waiting to be handed down, the Supreme Court heard arguments in Alice Corp. v. CLS Bank last month. The case is focused on the fundamental question of whether software and business methods are patentable. Many PAEs have portfolios containing software patents that are relatively vague and potentially applicable to many industries and targets. A negative ruling for software patents may ultimately affect the ability of PAEs to extract value from their portfolios.
Our stock performance analysis focuses on the following companies: Acacia Research Group (ACTG), Asure Software Inc. (ASUR), Network-1 Technologies, Inc. (NTIP – formerly NSSI), Opti Inc. (OPTI). Rambus Inc. (RMBS), VirnetX Holding Corp. (VHC), Vringo Inc. (VRNG), Universal Display Corp. (OLED – formerly PANL), Document Security Systems Inc. (DSS), Worlds Inc. (WDDD), Democrasoft Inc. (DEMO), Pendrell Corporation (PCO), Parkervision Inc. (PRKR), and Unwired Planet Inc. (UPIP).
From April 2013 to April 2014, the S&P 500 produced a total return of 17.91%. As a whole, the group of 14 companies above returned a combined return of -7.42% during this same period. However, 6 of the companies we analyzed had an overall positive return, with RMBS, VRNG, and PRKR beating the S&P 500 average.
RMBS had the best performance of the group over the past year, with a 71.41% return, followed by VRNG at 45.39% and PRKR at 20.05%.
The worst performing companies in the group were DSS (-57.70%), DEMO (-66.67%), and WDDD (-66.67%).
It will be interesting to see how these companies react and adapt to the challenges they are facing. Gigaom reported that nearly 200 lawsuits were filed this week by patent trolls “in an attempt to dodge proposed reforms brewing in Congress.” It is likely that the companies we analyzed may increase their litigation activity aggressively in the coming weeks and months before any proposed legislative changes go into effect.