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Patent-licensing company Marathon Patent Group Inc., in a bid to reverse its falling fortunes, is turning to Fortress Investment Group LLC to monetize some of its intellectual property.
The company plans to eliminate a $16 million debt obligation owed to Fortress by designating the handling and monetization of three of its patent portfolios to the New York-based alternative-asset manager. The three portfolios hold more than 70 patents out of Marathon’s total 293.
Marathon has also entered into an agreement with undisclosed investors to secure $3.5 million to $5.5 million of convertible debt financing to fund strategic investments, it said Aug. 15 in a regulatory filing.
Marathon said Aug. 14, in a statement, that its total revenue slid 99 percent to $368,800 in the second-quarter ending June 30. Its struggling business reflects the fate of small-cap publicly-traded intellectual property companies whose stock prices have fallen drastically in recent years, as potential licensees refuse to pay fees and instead opt to engage in costly litigation.
A composite of small-cap intellectual property companies—those with market capitalizations of under $1 billion such as Marathon and Finjan Holdings Corp.—assembled by Bloomberg Intelligence analyst Matt Larson has declined over 84 percent since January 2013. By comparison, the NASDAQ Composite Index has more than doubled over the same time period.
“You win in trial and then you’re on appeal and you’re sunk,” Larson said. “Lawyers, vendors, experts need to be paid and bills rack up before there’s anything coming in through the door.”
It’s likely that Marathon is raising funds, which will be converted to equity to be owned by the investors down the road, to finance a campaign to litigate some of its patents by suing those who refuse to pay licensing fees, Larson said. Marathon appears to be leaning on Fortress to pull through a dry spell of revenue, he said.
Small-cap IP companies “can draw upon other groups that can fund a longer patent play so you have a better chance of a return on patent monetization efforts,” Larson said.
Access to debt financing is conditional on Los Angeles-based Marathon restructuring its liabilities to Fortress and others, in accordance with levels set by the new investors, it said in its filing. Moreover, its restructuring agreement with Fortress’ affiliate DBD Credit Funding is subject to a shareholder vote.
Marathon’s bread-and-butter patent licensing and litigation business has taken a beating in the last two years, Larson said. Its stock has fallen about 96 percent from January 2013 to 26.3 cents per share on Aug. 15, after reaching a peak of more than $9 in late 2014.
Marathon declined to comment. Fortress didn’t immediately respond to a Bloomberg BNA request for comment.
Fortress has been helping IP licensing companies looking to repay debt or acquire patents by lending them money as they weather tough public market conditions.
In May 2015, Marathon secured a $50 million long term line of credit from funds managed by Fortress affiliates, including DBD Credit Funding, to acquire patents and expand its intellectual property portfolio. The restructuring deal would not only waive Marathon’s debt obligations but give it a 45 percent revenue share once DBD recovers its costs, management fees, and debt amounts, Marathon CEO Doug Croxall told investors on an Aug. 14 conference call.
Under the deal, Fortress will be assigned three patent Marathon portfolios, including Magnus IP covering internet-connected home device technology and Traverse Technologies’ related to improved lithium-ion battery performance. Dynamic Advances, the third set, broadly covers disparate technologies, including those related to cardiovascular disease diagnosis and eye-gaze tracking.
Fortress’ management of Marathon’s patents under the deal would include filing infringement lawsuits against companies believed to be avoiding paying licensing fees. Fortress has already taken that route with patents assigned to it by another small-cap patent licensing company, Inventergy Global Inc.
Fortress agreed to lend Inventergy $11 million in 2014 toward debt repayments and working capital. In December last year, Inventergy announced a restructuring agreement resulting in Fortress taking over its patent assets and related monetization efforts.
Inventergy’s patents, some of which were acquired from companies including Panasonic Corp., Huawei Technologies Co. Ltd., and Nokia Corp., are held in an investment vehicle managed by Fortress. In May, the investment vehicle filed two separate lawsuits against HTC Corp. and Apple Inc., alleging that the two mobile device makers infringe seven of its patents related to wireless communication technology.
SoftBank Group Corp. said in February it has agreed to buy Fortress for $3.3 billion in cash to operate alongside the Japanese company’s soon-to-be-established technology investment fund. The acquisition, subject to regulatory approval, is expected to close in the second half.
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