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Increased Demand for IP Assets

by Hilco Streambank | Jun 18, 2014

Many businesses now exist where the primary revenue driver is IP licensing. Public companies such as Iconix (Nasdaq: ICON), Sequential Brands Group (Nasdaq: SQBG) and Cherokee (Nasdaq: CHKE), derive all of their revenue from the royalties generated from the licensing of consumer brands. The emergence of these licensing businesses has created significant liquidity in the market for consumer related brands and, as well, created new clients for ABLs willing to lend against the value of the brands in their portfolios. On the patent side, companies such as RPX (Nasdaq: RPXC) and privately owned Intellectual Ventures, accomplish the same ends by pooling capital from technology firms and engaging in cross-licensing of the patents they acquire.

Because of the low and generally predictable carrying costs associated with intangible assets, they have become an increasingly popular asset class for financial investment. Large investment funds have been raised to acquire patents and other intangibles for purposes of aggregating licensing fees and royalties. These investors are often referred to as Non-Practicing Entities (NPEs) since they do not use their IP assets in any other business. Similar structures exist with respect to the acquisition of trademarks and copyrighted content.

Another driver of liquidity in the market for intangibles is the increased efficiency of web based models for the sale of consumer products and the distribution of digital content. Many of the operational aspects of these businesses can be outsourced to third parties and licensees thereby reducing execution risks and allowing intangibles to be leveraged in multiple channels.