The Company's business is focused on assisting its clients to realize a fair return on their intellectual property.. There is a real and substantial profit opportunity for many companies in the exploitation of valuable IP portfolios, particularly patents, through a focused licensing and/or sale program. The business of patent sale and licensing has grown from three billion dollars in 1980 to over five hundred billion dollars worldwide in 2010 according to several analysts.
A wide range of IP management styles are practiced today, ranging from R&D with no focus on obtaining patents, to defensive or reactive licensing, opportunistic ad hoc licensing, and proactive core and non-core licensing, to the highly effective, but rare, practice of treating licensing as a business. In parallel with these styles, the value these entities earn from their IP ranges from minimal, apart from what they embody in their products, to a substantial fraction of their total corporate net income. The latter has been a relatively recent trend. IBM, one of the leaders in this trend, saw its total licensing income grow from less than twenty million dollars in 1987 to over a billion dollars annually by 1997, representing a consistent yearly return of more than a dollar per share. By 2000, it grew to over $1.7 billion!
Today there are a handful of major companies, including IBM, Qualcomm and Texas Instruments, which earn hundreds of millions of dollars annually from licensing their patents. More recently, companies such InterDigital are executing a business strategy which develops patent assets almost exclusively for licensing purposes. Unlike revenue that comes from product sales, licensing fees usually go almost entirely to the bottom line, and best-in-class licensing organizations often achieve a return of over 90%.
The typical large high tech company exerts minimal licensing effort to extract the potential of its IP. Although senior executives are becoming more aware of such potential, income is frustratingly negligible and derived from a small number of patents; a few companies are licensed and infringers are not challenged; a small percentage of their patented inventions are even used in their own products; and they get less than one patent per $10 million of R&D investment. All of these metrics can be improved, often by an order of magnitude, as Fairfield Resources has demonstrated to many of its clients.
There are many published reports of substantial patent portfolio sales, as well as "non-core" licensing deals. In 2011 and 2012 a consortium led by Apple and Microsoft paid $4.5B for a 6000 patent portfolio of the bankrupt Nortel; Microsoft paid $450M for 880 Novell patents; InterDigital sold 1700 wireless patents and applications to Microsoft for $375M; AOL sold 800 patents to Microsoft for $1B; and Google purchased Motorola Mobility and its huge patent portfolio for $12.5B. Fairfield has purchased substantial patent portfolios for its clients often from companies no longer active in the field of these patents for prices in the tens of millions of dollars.
The founders and principals of Fairfield gained considerable direct experience and success in negotiating profitable licenses for the companies at which they were previously employed. By employing this experience, FRI and its clients can realize significant revenues by sharing licensing revenues from contingency fee arrangements. The Company has had as many as forty such agreements in place since January 1, 2002. In some cases, the FRI had exclusive rights to large portfolios of several thousand patents issued throughout the world; in other cases the arrangement involved patents highly focused on emerging technologies, and in a number of situations, single patents covering important inventions.
Through the use of proprietary techniques and expert analysis of intellectual property portfolios, FRI can locate significant reservoirs of unrealized revenue potential or patents suitable for defensive accumulation. These may include cases where competitors are using a party's patents without a proper license and without the knowledge of the patent owner, and others where technology evolution will lead to such use. Still others represent substantial market opportunities for new products and services. Fairfield brings to these clients unequaled unequaled experience and success in identifying such potentially valuable patents.