Sound Architecture? Intellectual Property Analysis of MIPS Technologies, Inc.
On April 13, 2012, news surfaced that processor designer MIPS Technologies had hired Goldman Sachs to help identify potential buyers for the firm. Considering MIPS is a company that derives its revenue from licensing and royalties, this sale would include a nearly 600 count patent portfolio. Potential buyers would be very well-advised to perform rigorous diligence on the MIPS intellectual properties to “right-size” the transaction.
In 2000, eight years after being acquired by Silicon Graphics, Inc., MIPS Technologies was spun off as an intellectual property licensing organization. Rather than following in its former parent’s footsteps (the remnants of which, as our readers know, has been surviving off patent assertions), MIPS has decided to sell itself, including its nearly 600 patents and other intellectual properties.
There has been broad speculation about potential buyers, including Broadcom, Qualcomm, Microsoft, and AMD. Of course, natural buyers of the portfolio could be MIPS licensees themselves, such as Motorola (either Motorola Solutions or Google), Texas Instruments, Toshiba, ASUSTeK, STMicroelectronics or the 70 other licensees that could benefit from owning the very architecture they license for their manufacturing processes.
However, potential buyers should be aware that 59% of the patents in the MIPS portfolio may have potential commercial viability, meaning 41% of the patents may have potential commercial impairments. Those impairments are, in part, due to the fact that many entities – including some current MIPS licensees – hold patents with claims similar to a portion of the MIPS patents. Some of those patents predate the MIPS portfolio, while others have “chipped away” at MIPS technologies in subsequent patent issuances to third parties.
If some MIPS technologies are impaired, that could prove troublesome for MIPS and prospective buyers, as the bulk of the company’s revenues come from licensing and royalties. As stated by MIPS in its 2011 10-K, almost half of its revenues come from its top five customers, and “the loss of a key customer or any significant delay in our customers’ product development plans could seriously impact our revenue and harm our business.” Patents with similar claims – especially when they are held by current licensees – could undermine the very technologies that MIPS out-licenses, thus potentially undermining the majority of its revenue.
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