Snap Reveals Patent Acquisition Costs in S-1 Filing

Snap’s S-1 filed last week provides further insight into the company’s patent portfolio. The S-1 states “[a]s of December 31, 2016, we had 328 issued patents and approximately 220 filed patent applications in the United States and foreign countries relating to our camera platform and other technologies. Our issued patents will expire between 2017 and 2035.” (Page 122)

We analyzed Snap’s patent portfolio last September, at which time we identified 280 US patents assigned to the company, with 245 having been acquired from IBM. Interestingly, Snap lists the weighted average remaining useful life-years of its patent portfolio at 9.2 years (Page F-21). It is not clear if this remaining term is just for its US patent portfolio, or if it includes overseas patents. We determined the average term of the patents acquired from IBM last year to be approximately 9 years. With US patents having a 20 year term from their earliest effective filing date, the vast majority of Snap’s patent portfolio has less than half of its term remaining.

Snap lists its gross carrying amount for its patent portfolio at $9.45 million, with a net carrying amount of $8.128 million after accumulated amortization (id.). While the terms of its patent acquisition from IBM were not made public, and with no mention of this patent transfer in the S-1, it appears that Snap may have paid roughly $9-10 million for the 245 patents and 207 pending US patent applications from IBM. Excluding the patent applications, this equates to roughly $36-40k per patent.

In comparison, Twitter acquired 945 patents from IBM in 2014 for a reported $36 million, in an effort to settle patent infringement claims brought against it by the technology giant. This comes out to approximately $38k per patent, again, excluding patent applications. While we do not believe that a side-by-side “price per patent” analysis is always a useful indicator, in this case, since all of the patents were acquired from IBM and relate to software in the social and communication spaces, the price per patent may be useful as a comparable deal metric.

Snap and Twitter’s patenting strategy at this point appear to be very similar, with the vast majority of both portfolios predominately made up of acquired patents from IBM. Twitter has famously embarked on a non-patent assertion pledge, and has not made significant strides in organic patent development as one would expect from a publicly traded, technology focused software company. It will be interesting to see if Snap diverts from this path and strategically focuses on its own organic patenting. Snap’s S-1 indicates the company may have a strategy of acquisition versus internal development however, stating that “in the future we may acquire additional patents or patent portfolios, which could require significant cash expenditures.” (Page 26)

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