Related Tickers: BRBY, CSCO , GOOG
- BlackBerry has announced plans to step up its patent monetization efforts.
- This has come following the company's impressive results in the first quarter after the company's software division was given a boost by a lucrative patent licensing deal it struck with Cisco.
- BlackBerry's patent monetization deal is likely to be a long and arduous process but good over the long-term.
Beleaguered smartphone manufacturer Blackberry (BBRY) is in the middle of an ambitious turnaround bid as it tries to move away from its traditional smartphone hardware to a software-centric model. BlackBerry has achieved considerable success in its turnaround bid, with CEO John Chen at the helm. BlackBerry software/licensing revenue rose 150% Y/Y during the May quarter, by far the company’s fastest growth. Software & Licensing revenue now accounts for a respectable 21% of company revenue. The strong software growth was partly fueled by two patent licensing and cross-licensing deals that BlackBerry struck with Cisco (CSCO) and another unnamed party.
BlackBerry will announce Q2 2015 results on Sept. 25 2015, and its software segment is expected to continue blazing the trail for the company.
BlackBerry Patent Monetization Efforts
Now BlackBerry has announced a new plan to step up efforts to monetize its wide cache of patents. BlackBerry owns a staggering 44,000 patents, which it can freely monetize. Patent monetization can be achieved using two main channels: selling the patents outright, or licensing the patents to other organizations for a predetermined period of time the way BlackBerry did with Cisco.
Selling patents is usually the most lucrative way to monetize them since all a company has to do is look for a willing buyer then transfer all the rights of the patents to the buyer usually for a large sum of money. There is, however, a big problem that faces companies that try to sell their patents: the true value of any patent is usually highly subjective and hard to determine fairly. There are two tech companies that have learned this the hard way: Google (GOOG) and Microsoft (MSFT).
Google struck a partnership with Motorola Mobility for a whopping $12.5 billion in 2011 that transferred Motorola’s considerable intellectual rights. A huge part of that sum was attributed to Motorola’s patents. But it soon turned out that Google had grossly overestimated the value of the patents. Motorola and Microsoft were embroiled in a fierce court battle long before Motorola struck the partnership with Google about the use of its ubiquitous H.264 video and 802.11 Wi-Fi standards. Google was demanding that Microsoft pay 2.25% of revenue per device sold that employed the standards, or $4 billion per year, whichever was lower. But the courts later ruled that Microsoft only had to pay a mere $1.8 million per year, which immediately brought into question the true value of Motorola’s patents.
Microsoft is not a stranger to patent monetization either, and is arguably the most successful company when it comes to patent monetization. Analysts estimate that Microsoft earns about $2 billion every year from licensing its Android patents to Android phone manufacturers. But not all Microsoft patent deals are so lucrative. The company recently wrote off its $7.6 billion Nokia handset acquisition which included 8,500 Nokia patents. Although the details of the Nokia patents remains unknown, it’s safe to assume that they are nowhere nearly as lucrative as the Android patents judging by Microsoft’s shrinking bottom line.
What Will BlackBerry Do With Its Patents?
BlackBerry is likely to sell whatever it can and license whatever it can of its numerous patents. As Chen pointed out, BlackBerry is not sure which route to take because:
"If you go too far and become too aggressive, you become a [patent] troll ... If you want to go about monetizing your patents in a non-aggressive, legal way then it takes time, and in a turnaround time is one of the key commodities you don't have, so balancing those two is very difficult."
BlackBerry claims that it has some of the youngest patents in the entire industry, which ostensibly means they could be quite valuable and the company might decide to sell them outright to accelerate growth. But it’s more likely that the company will license most of its patents the way it did with Cisco. As the CEO pointed out, the company is keen on avoiding burning its bridges by becoming too aggressive with its monetization efforts which might alienate its partners. Licensing patents is usually a slow way to raise money, unless of course they happen to be as lucrative as the Cisco deal. BlackBerry’s patent monetization efforts are therefore likely to be long and arduous, but in the end, they have real potential to create value for both the company and its shareholders.
BlackBerry shares trade at a mere 1.1x book value. I believe the shares are a good investment for investors willing to hold them over the long-term.
Cover image source: Flickr/Sam Churchill
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