For the last two years, Envision IP has published annual stock performance analysis of publicly traded patent holding companies (also known as Non-Practicing Entities, or NPEs). Our first analysis included data from 2008 to 2012, and it showed impressive gains by many NPEs, with the majority of companies that we reviewed beating the S&P 500 by double- and triple-digit gains.
However, our 2013-2014 research indicated that this industry may be losing steam, as many of the NPE’s we analyzed experiencing double-digital losses compared to the S&P 500. Standout stocks during this period however included Rambus, Vringo, ParkerVision and Asure Software, each significantly beating the S&P 500 average return during.
Over the last year (April 2014 to April 2015), the patent industry as a whole has seen numerous changes, with the Supreme Court’s decision in Alice Corp. v. CLS Bank bringing a cloud of uncertainty towards the future of business methods and software patents. In addition, legislative activity with regards to patent reform has resumed, with both the House of Representatives and the Senate introducing bills with various measures aimed to curb aggressive patent monetization practices. Furthermore, a number of states passed “anti-patent troll” laws last year.
In light of these headwinds facing the patent monetization industry, the larger players in this space with over $1 billion in market capitalization faired quite well over the last year, with Tessera, InterDigital, and Rambus having impressive double-digit gains. Companies with less than a $1 billion in market capitalization all fared significantly worse than the S&P 500 however, with each of these companies on our list having double-digit declines during the period.
Some of the declines for these companies can be attributed to stock price reactions to adverse judgments received in district and appellate court. For instance, last June, ParkerVision lost a $174 million verdict that it had received against Qualcomm the year before, and last August Vringo lost a $30.5 million verdict on appeal against Google, where the court also found Vringo’s patents in the case to be invalid.
For the large-cap players that performed well last year, these companies appear to be a bit more diversified, having research and development operations and actual commercial services and products (according to their websites), as well as established licensing programs. While Tessera, InterDigital, and Rambus have been labelled NPEs by the media due to their patent monetization activities, these companies appear to lack a singular focus on assertion and licensing – a characteristic that may separate them from their smaller-cap peers.