Avigilon Acquires All ObjectVideo Patents for $80 Million USD

I cannot help but admire this ruthless move. Avigilon has no friends, and doesn't much care.

Stock price update: The market has opened and Avigilon stock is only up slightly (less than 50 cents / 2.7%) at this time.

Evidently, investors are not particularly pleased or upset with this move.

That noted, though the immediate revenue impact may be modest, we believe the strategic / competitive benefit of this deal to Avigilon could be tremendous.

For those who want to hear more from Avigilon, here is the 39 minute investor call audio recording.

A member mentioned to us that it was amazing that OV's patents, which include no products nor technology, sold for 2.5 times that what VideoIQ's entire business including technology, products, their own patents and ~$20 million in revenue did.

It's a good observation.

The premium for OV's patents reflect a few things:

• The gross margins / profits on patent licensing is extremely high, so if those agreements generate $3 million in annual revenue, perhaps only $300,000 in ongoing admin costs are needed.
• The patents could last another 10 to 20 years, depending on which patents are in question, when they were issued, etc. This means a (rising) and probably highly profitable revenue stream for many years to come.
• Last, but not least, is the strategic value of blocking or hindering competitors from selling video analytics because they can control the terms of licensing / allowing rivals to be in the market.

Of course, there is one really big risk. That is that the broadest patent ('945, for tripwire / calibration) is invalidated. Bosch tried this before but abandoned this after they reached a favorable settlement condition. However, such a process could take years, it has its own significant cost, there is no guarantee of winning, etc. It depends how tough Avigilon plays its hand negotiating with their rivals.

OV also retains its services / R&D business, which is not part of the deal.

Any idea what agreement may be in place so that OV's R&D unit itself would not be beholden to Avigilon's control of their erstwhile patents? One would assume that whatever OV is developing would likely build on their existing portfolio.

License in perpetuity unless company sold? No partnering? Tricky stuff...

If this was such a good deal, why wouldnt a large, publically traded company see the value and make an offer to OV?

I would think a large publically traded company must have conisdered buying OV and what that would mean fincaially and competitivly but decided not to pursue after some due dilligance.

some of the quesitons from the analyst seem to indirectly question the purchase.

So do these patents only effect the American market? Surely wont effect AgentVI, IOIMAGE or any of the other video analytics operating outside the USA. There seems to be a big upsurge in video analtics for people counting in marketing applications wonder if this is going to be efffected. I am sure the shareholders of Avigilon wont be happy if they loose a challenge in court. Hats off to Avigilon, taking the initiative to drive the analytics market though.

Does anyone know how much total coin was pumped into OV by DARPA and US Navy over the years? OV has, and has had, some smart people working on amazing projects. They were at one time considered the standard for video analytics. Former DARPA PhDs started OV, then collected pork grants as video analytics was starting to really take shape in the early 2000's. US Small Business Innovation Research / Tech Transfer records show $17M+ in grants to OV over the past 10+ years: OV's SBIR Page. Other outside investors took a swing at OV payback.

As a US taxpayer, I question two things: 1) Did OV actually contribute anything of true value to DARPA/Navy, the industry, or customers?; 2) Did/does the DoD stand at all to recoup any cash benefit from the high-risk grant money it gave to OV? I have to assume that OV was delivering what was promised, otherwise why in the world would they continue to throw money at them for years? Why them? Were they the only ones going after these projects? Were they coming up with ideas and feeding them to the DoD to turn into programs that would lead funding back into OV? My pea brain can't wrap its arms around why DARPA/Navy would be so satisfied to be as loyal as they were, while hundreds, if not thousands of end-customers worldwide ended up licensing a product that largely underwhelmed and is most likely not in active use today.

I'm not suggesting anything was illegal, but more so deceitful. And to announce this at holiday time is all the more a kick in the pants of this industry who can look forward to Avigilon's cute little 'Wolf of Wall Street' approach to business getting cranked up a notch. Not only will customers get the whole truth when Avigilon represents their product, but an extra dose of 'the product you have AND the product(s) you are looking at buying are both probably infringing on our patents.'

Somebody please debunk these concerns in part or whole.

A fly in the ointment?

Sounds like Avigilon has effectively cornered the market in analytics; in addition to their acquisition of market leader VideoIQ, they now gain agreements with Axis, Bosch, Panasonic, Sony, Pelco, Hikvision and Tyco to name but a few. Is that everybody?

Almost... Missing is Samsung Techwin, who was able to successfully defend itself against OV's claims back when others were caving. How did they do it? The OV spin was that once they got a good look at Techwin's technology they realized it was too primitive to infringe. Techwin simply claimed they were right all along. And clearly Techwin is now providing more than just primitive analytics with their Wisenet III line.

And just recently (August), they were granted this sophisticated patent:

METHOD AND APPARATUS FOR DETECTING ABNORMAL MOVEMENT

Provided are a method and apparatus for detecting an abnormal movement. The apparatus includes a feature tracing unit configured to extract features of a moving object in an input image, trace a variation in position of the extracted features according to time, and ascertain trajectories of the extracted features; a topic online learning unit configured to classify the input image in units of documents which are bundles of the trajectories, and ascertain probability distribution states of topics, which constitute the classified document, by using an online learning method which is a probabilistic topic model; and a movement pattern online learning unit configured to learn a velocity and a direction for each of the ascertained topics, and learn a movement pattern by inferring a spatiotemporal correlation between the ascertained topics.

If Techwin is the only other analytic game in town now, couldn't one argue that their portfolio increases in value as well?

The Techwin "Method and Apparatus for Detecting Abnormal Movement" was not granted yet. In August the application was simply published as US20140241619.

In the near term, it may be bad for the industry especially if Avigilon makes it difficult or expensive to license. But this might actually spur companies to come up with innovative ideas on video analytics.

Here's an interesting take:

"Alex [Avigilon CEO] found his competitors napping (Samsung, pelco, axis, bosch, sony, Panasonic etc..) and pulled the rug from under them. When they wake up, they will then realize the damage that was inflicted on them, it will be like general Norman Schwarzkopft said in the Desert Storm Campaign, "shock and awe."

I agree with the potential for damage. I also agree that they were napping, but the real napping occured during the initial OV lawsuits. It is now even more obvious that the manufacturers should have fought harder to stop / invalidate OV back then.

As for other manufacturers pulling this move (buying OV's patents), their culture / business model would not support this. Companies like Axis, Pelco, Sony, etc., seek to partner with others. Buying patents and using them to maximize payment / competitive damage is something that Avigilon is uniquely suited to do.

Knowing how agnostic you are on this brilliant website John, I am sure you don't care one way or the other personally about which company wins or losses in anything.

The way I am reading this, you seem to honestly believe this is almost case closed for the rest of these companies. That is scary. Pay Avigilon or get out of the game. Thats how it reads to me. Great game everyone, see you next time.

One of my favorite games growing up was Monopoly. Acquire as much as possible, take everyone else out. For three hours, and in some way shape or form, it made cheaters out of the whole family. (IPVM -ers, just try and tell me you didn't cheat at this game).

As soon as one of us started repeatedly using an effective strategy, the others would switch gears and the table talk would elevate.

Avigilon is winning, adaptation is coming in some way shape or form.

I can think of some examples. The army of integrators; will motivations change in how they push analytics now? To downplay them? Are consultants now going to choose; drive up the price of specific systems or flat spec Avigilon? Are manufacturers really going to think its just easier to pay Avigilon? All of them? Really?

I don't know, I just don't believe people give up or in that easily and in my experience nobody can really take over and dominate this business.

Well played Avigilon, I believe you force everyone else to be better by being so clever.

Last week Avigilon's CEO was in New York discussing how he wanted their products to enable more use cases for customers aside from security, namely business intelligence in retail applications.

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It's something they couldn't offer with VideoIQ's products but the OV patent portfolio now allows them to build and deploy it. There must be a reason they appointed a machine learning and computer vision PhD as CTO. Maybe it's already been built secretly and they now have the greenlight to commercialize it while being immune to lawsuits and copycats.

Many in the comments seem to assume Avigilon is looking to become a glorified patent troll but it seems more logical for them to use this to further differentiate and enhance their products. While people worry about camera commoditization, they'll have the smartest cameras and turnkey systems around and be able to offer them while underpricing competitors. Since I'm not one of those competitors but an end-user and part-time industry analyst, I must admit it's a shrewd and brilliant move.

Update. Avigilon filed a material change report on Dec 24, 2014. One notable new piece of information was included:

"Avigilon also has the right to receive 50% of the proceeds of any sale of all or any part of the remaining ObjectVideo business segments over the next five years."

There's some potential upside there. OV still has its R&D / services business which has his historically generated ~$10 milllion annually and is considered to be to quite profitable.

Given that OV secured such impressive and successive federal funding, I wonder to what degree their IP is subject to shared rights with the feds. Unless OV documented that the IP was developed prior to, or without the benefit of, federal funding then the feds enjoy shared rights. The consequence is that sales of products to the feds are not subject to IP royalties. Please note, I am a propeller head and NOT an attorney….