This week Uber announced they will be launching a patent purchasing program starting April 24th and running for 4 weeks. This isn’t the first time Uber’s patent transaction lead, Kurt Brasch has led a program like this. It is an interesting move to set such a wide net for a company that has a relatively targeted business.
Earlier this week, Uber announced the launch of a new patent purchasing program, UP3. They are promoting this program as a less complicated alternative to the current patent market which they claim “is extremely challenging, especially for sellers.” So why the move to buy more patents now? Uber has been hit with a lot of significantly bad press lately, and a lot of valuable top leadership has left. UP3 could be a step to protect the company via patent acquisitions as a defensive strategy. Or, maybe, this is an internal play to boost the value of Uber’s portfolio to ensure a clean IP Due Diligence process if they were to have an IPO soon as is rumored. Looking into Uber’s current situation, their existing patent portfolio, and into the back story of UP3, a slightly bigger story emerges that would be helpful to anyone thinking of participating in UP3.
Currently, Uber is the defendant in a trade secrets theft case with Alphabet (Google) over claims Uber executive Anthony Levandowski stole confidential documents and proprietary information belonging to Waymo, a self-driving car spin out from Google. Levandowski went on to start Otto, which was then purchased by Uber. If Uber loses this case, they will not be able to use the LiDAR sensor technology Google claims was stolen from Waymo and will prevent them from getting to market as quickly as they need to. Uber claims they are nowhere near close to developing their own LiDAR sensors and are therefore not guilty of using the information that was reportedly taken.
To date, Uber only has 144 patents in their portfolio (Google has roughly 75,000), most of which are from their own filing process although they have acquired a small number from other companies such as AT&T and Microsoft, as well as those from wholly acquired companies such as deCarta and Otto. The acquisition of Otto only brought 1 patent family to the company, so the main motive of the acquisition was likely to bring in their tech and know-how. Uber has a relatively small portfolio for a company with revenues of around $10B and a value of $68B. These patents are largely focussed on their current business, with only a small segment on LiDAR and other autonomous vehicular technologies, shown as the dark yellow cluster on the left side of the graphic below which shows Uber’s portfolio by technology segment.
While valuation and revenue are high, Uber is not a profitable company yet. Based on their response to the Waymo lawsuit, and other recent reports, they’re not sure they will survive without competing in the autonomous vehicle space. But, in a March report in The Information, it was pointed out that taking the driver out of the equation would “only increase Uber’s projected long-term net profit margin by as much as 5 percentage points.” Not nearly as “existential” for the business as Uber’s CEO Travis Kalanick, would lead you to believe. If Uber is dead set on self-driving cars as their saving grace, Uber will either have to increase profits via e.g. a larger number of passenger journeys via the autonomous taxis, reduce costs significantly, or license their self-driving tech to 3rd parties as an additional revenue stream.
Uber states in their announcement that their purchasing program is based on the success of IP3, a patent purchasing program through the Allied Security Trust. IP3, and notably the IAM Market, are examples of new emerging patent marketplaces creating “accelerated environments” for inventors and companies to sell their patents. Kurt Brasch is Uber’s patent transactions lead, before joining Uber, he was Google’s senior product licensing manager where he launched Google’s 2015 Patent Purchase Promotion (PPP), an experiment to try and simplify the patent transaction process and keep patents out of the hands of none practicing entities. Google’s patent purchase promotion was noted as a catalyst for IP3.
A big difference between IP3 and UP3 is that IP3 consisted of 21 companies, including Google, Apple, Microsoft and Ford converging on one patent marketplace. The AST and the 21 member committee were responsible for deciding which patents were worth buying. In total, 1,378 deals were submitted to IP3 and 56 offers were made. Only 4% of the submitted deals were recognized as being worth buying which is much lower than Google’s promotion where 28% of the patents that were offered were purchased. AST attributed the low number of deals to the fact that, “very few issued patents are worth anything.” Although, AST CEO Russel Binss also stated, “there were numerous quality assets and we couldn’t buy them all.” The difference in a number of deals may also have to do with Google knowing what they were looking for because of their internal business objectives versus the broader scope AST and their committee might have had.
Interestingly, there is no mention of patent trolls or Patent Assertion Entities (PAE) in the UP3 announcement. Brasch’s first attempt at this while at Google was very focused on keeping patents out of the hands of non-practicing entities. It is also interesting to note that Uber was one of the founding members of the LOT Network, which is focused on preventing operating companies from selling patents to trolls. Not mentioning trolls makes it clear this announcement is much more about increasing Uber’s overall value through patent procurement than it is about creating a more fair playing field for innovators.
Unlike Google, and AST’s 21-member committee, Uber only has a team of 10 in-house professionals dedicated to patents. AST gave sellers two weeks to submit deals and gave themselves two weeks to analyze the 1,378 deals that were submitted. Google only stated that they received thousands of patent deals over the two weeks they took submissions and gave themselves a month to review them. Uber is taking submissions over the course of 4 weeks and is giving themselves 7 weeks to review them.
Outside of dates, and jurisdiction of patent families (families submitted must have at least one U.S. family member), Uber has provided no guidelines for submissions. They have listed no specific criteria or technology areas they’re looking to find patents for. Instead, they are asking potential sellers to submit any patent which they believe Uber may have an interest in. Knowing how small and narrow their current portfolio is and their autonomous vehicle ambitions, you would think they would benefit from at least suggesting categories for submissions. Maybe they feel that would give too much information away to their competitors.
After the first round of patent purchases through the IP3 program, it was concluded that while the process was much quicker, the overall buying prices for patents was lower than in the brokered patent market. For sellers looking to sell quickly this was a win, but for those willing to hold out and be patient, there is significant potential to reach a higher negotiation price using a broker, which comes down to a matter of valuation. Brasch stated in a recent interview, “valuations are difficult to identify for both buyers and sellers. Sellers tend to start out really high and buyers tend to start out really low, and negotiations can take years instead of months.” His program requires sellers to set a single price and offers no negotiating.
Considering the limited information Uber has provided to potential sellers, and the relatively short time frame, anyone interested in submitting a family of patents will benefit from doing some research to better understand if their patent families have a chance of being purchased. As a seller, you will need an idea of what your asking price should be and you need to be strategic if your goal is to sell quickly, but still not lose out on the potential value of your patents. UP3 creates a buyer’s market, but that doesn’t mean the seller will be taken advantage of if they can prove the asking price is reasonable.
Interestingly, UP3 is not accepting claim charts or evidence of use documentation (EOUs). This is an unusual decision, as patents with evidence of use materials are typically found to be more valuable assets, and are considered to be highly desirable when reviewing an asset. It may be indicative of how many offers the modest sized IP team are expecting to go through, and therefore want to minimize the quantity of materials to go through per patent. Alternatively, it may be that they have very specific desires for these patents and they want to reveal a minimal amount of strategic information to the seller via their patent purchase. Alternatively, given that evidence of use materials indicate value via identifying potential existing infringement cases, they may not be interested in what others are doing and are purely interested in the technology for their own use cases.
Regardless of motivation, it is a very time consuming and costly decision to ask for patent purchase offers with such open-ended criteria. It makes sense for a company like Google who has a massively diversified patent portfolio and the AST who are literally a marketplace for buyers and sellers to do a quick open-ended patent promotion program. It seems to make less sense for Uber.
Considering Uber’s current situation, and portfolio, it would be beneficial to be more pragmatic in their search. A targeted search for specific technologies can expose early assets covering desirable innovations, and using a 3rd party for the negotiations can retain anonymity and therefore minimize risks associated with revealing potential business vulnerabilities. This would avoid using Uber’s small patent team very ineffectively by having them spend vast amounts of time reviewing assets of questionable relevance to the companies intentions. Curious to see if they find what they’re looking for, and ultimately what the acquired patents end up being used for.