Marathon Patent Group CEO Doug Croxall has so far done what few rival CEOs of publicly trade patent monetization companies have been able to do: raise money without significantly diluting his investors and using it to acquire patents he can turn into revenue.

While other patent monetizers have diluted shareholders with various rounds of convertible preferred financings, which allowed them to acquire patents without any significant infringement action victories or licensing revenue, Croxall has kept his financings to a minimum, made some smart acquisitions, concentrated his infringement action firepower on a few critical cases and won some meaningful licensing settlements.

Indeed, on October 13, Marathon announced it agreed to pay $10 million to acquire interests in three companies controlled by MedTech Development LLC. The company is acquiring 100% interests in OrthoPhoenix LLC, TLIF LLC as well as 100% of the shares of MedTech Development Deutschland GmbH.

Marathon said each of the MedTech companies own certain medical technology patents, including pending litigation and settlement and licensing rights that are being acquired in the transaction.

About 45% of MedTech is owned or controlled by Erich Spangenberg, the founder and owner of IP Navigation Group in Dallas, or by his family or associates. Spangenberg also is an investor in Marathon.

The patent portfolios included as part of this transaction cover inventions and technologies related to kyphoplasty, intervertrebal inserts and heart valve technology.

Marathon said cases are currently pending in the United States and Germany with respect to the kyphoplasty technology, the United States with respect to the intervertrebal technology and Germany with respect to the heart valve technology.

Marathon agreed to pay $1 million in cash up front and then another $1 million on each of the following 9 monthly anniversaries of the agreement. The company entered into a promissory note with MedTech for the remaining amount.

To partially finance the acquisition and its business, Marathon said that on Thursday, Oct. 9 it raised $5.5 million from a private placement of convertible debt and warrants.

The company issued 5,500 4-year convertible notes that pay a coupon of 11% and convert into common stock at $15 each. That reflected a premium of 13.6% based on the Oct. 9 close.

Investors,who were not disclosed, also received 128,333 warrants that convert into common stock at $16.50. That reflected a premium of 25% based on the Oct. 9 close.

This was the fourth private investment in public equity financing for Marathon, which previously raised $6.5 million from convertible preferred stock in May 2014.

Investors in that PIPE included Del Mar Asset Management, Four Kids Investment Fund LLC, Riding the Bull LLC, Stetson Capital Investment LLC, Sandor Advisors LLC, and BRH Inc., controlled by micro cap financier Barry Honig.

Prior to that, Marathon raised $6 million in a common stock PIPE sold to LH Financial Services, Hudson Bay Capital Management, IP Navigation Group, Iroquois Capital LP, Midsummer Capital, BTG International Ltd. and Paradox Capital Partners LLC.

The company also raised $5.8 million in a common stock PIPE in January 2012.

Marathon had cash and cash equivalents of $6.5 million as of June 30, 2014, after posting a net loss of $598,863 in the first six months of 2014. The company also spent $1.27 million on dividends related to beneficial conversion feature of Series A preferred stock, bringing the net loss to $1.87 million in the period.

While Croxall has raised a minimum of capital to support Marathon’s business, he has had some success in turning that capital into portfolios of patents that earn revenue for Marathon.

As recently as Oct. 6, Marathon said in a securities filing that it generated $13.5 million in licensing revenue from a settlement with undisclosed companies.

“That is probably a fluke,” said William Rely, director of research at Midtown Partners LLC in New York, in a telephone interview.

Relyea and his colleague Alec Jaslow initiated coverage of Marathon on Oct. 7 with a “strong buy” rating and a price target of $16.73. Shares of Marathon closed Wednesday, Oct. 15 down 17 cents to $12.25 in Nasdaq Capital Market trading.

“These things tend to be lumpy," Relyea said. "Some stretch it out over a few quarters to give it a smoother feel. They probably discussed that. If you get the lump sum you probably don’t get full credit.”

Relyea said he’s been very impressed with how professional Marathon has been.

“They have a lot of experience with IPNAV. They’re very information and intelligence driven. They seem to have a way of doing business that works.”

Even so, Relyea said Marathon is unlikely to be able to consistently repeat the settlement revenue it just announced every quarter.

“You still don’t know all you’d like to know about the pieces,” Relyea said. “We don’t have enough detail. It’s hard to predict what’s going to happen in the short term. Settlements can happen very fast. There’s a certain amount of unpredictability.”

At least one investor, Barry Honig, the microcap financier who owns 571,564 shares of Marathon or a 9.99% stake, was excited about the settlement revenue and prospects for more.

Marathon “is the only [publicly traded] patent investing company producing licensing revenue,” said Honig.

Honig has said he thinks Marathon will be a $50 stock with a market value of $360 million before too long.

To do so, shares of Marathon would have to more than quadruple from their current price of $12.25. They’ve traded between $4.50 and $16.40 over the past year.

Marathon also recently hired Honig to assist the company in marketing its new patent valuation tool OPUS Analytics to potential subscribers. OPUS is the brainchild of Croxall and his close friend Spangenberg.

For his services, Honig will receive 50,000 shares of Series B convertible preferred stock, plus another 50,000 shares of the convertible preferred stock in in six equal monthly installments of 8,333 shares beginning Oct. 17, 2014.

In addition to the 100,000 shares of Series B convertible preferred stock Honig is receiving, he will be entitled to receive additional shares of Series B preferred stock as compensation for the Marathon achieving certain benchmarks.

Honig can receive an additional $60,000 in preferred stock if he helps Marathon’s Opus Analytics platform achieve $2 million in revenue. He can receive an additional $60,000 in preferred stock if it achieves $4 million in revenue and another $60,000 in preferred stock if it achieves $6 million in revenue.

If Marathon’s Opus business achieves all those benchmarks, Honig will have received $280,000 in preferred stock.

The preferred stock converts into common stock on a one for one basis. Honig said it was structured as preferred in order to keep him from becoming a 10% holder.

For his part, Midtown Partners’ Relyea is optimistic that OPUS will eventually be a reliable source of annual revenue for Marathon.

“My sense is they had people beta test it and they were very loyal,” Relyea said. “I would think it could be very meaningful in terms of revenue and potentially smoothing of earnings.”

Relyea said OPUS is likely to be expensive though the people who need it, such as patent attorneys, will be able to afford it and pass the cost onto their clients.
“You don’t need an enormous number of clients to make it successful,” he said. “Even with half the revenue being split with IPNAV it looks meaningful.”

If Croxall wants to achieve the $50 stock price identified by Honig, he’ll have to string together more than a few quarters of licensing revenue like in the latest quarter.

Indeed, Marathon will probably have to achieve and hold onto significant infringement victories such as the ones recently thrown out against Vringo Inc. and VirnetX Holding Corp.

VirnetX had a $368 million jury verdict against Apple Inc. overturned by the U.S. Court of Appeals for the Federal Circuit last month.

Vringo also last month had a $30 million jury award and a royalty that could have been worth hundreds of millions of dollars against AOL Inc. and Google Inc. thrown out and the patents at issue invalidated by the Federal Circuit.

Marathon is currently involved in at least one potentially high profile infringement action against fourteen automobile manufacturers where it’s seeking $1.4 billion to $1.6 billion in preliminary damages.

The case — Signal IP Inc. v. Mazda Motor of America Inc. et al — was filed in May in U.S. District Court in the Central District of California before Judge John A. Kronstadt.

The complaint alleges infringement of patents for methods of improving zone of coverage response of automotive radar, occupant detection method and apparatus for air bag systems, method and control system for controlling propulsion in a hybrid vehicle and technique for limiting the range of an object sensing system in a vehicle.

The patents at issue were acquired by Marathon from Delphi Automotive PLC, which in turn had acquired some from its predecessor Delco Electronics. The patents were issued from 1995 to 2004.

The alleged infringers named in the complaint include American Honda Motor Co.($201 million to $223 million), Kia Motors America (4133 million to $148 million), Mazda ($63 million to $70 million), Mitsubishi Motors North America Inc. ($6 million to $7 million), Nissan North America ($151 million to $167 million), Subaru of America ($28 million to $31 million), Chrysler Group LLC ($154 million to $170 million), Ford Motor Co. ($304 million to $336 million), Volvo Cars of North America ($13 million to $14 million), Jaguar Land Rover North America LLC ($20 million to $22 million), Mercedes-Benz USA LLC ($120 million to $133 million), BMW of North America ($104 million to $115 million), Volkswagen Group of America ($132 million to $146 million) and Porsche Cars North America ($23 million to $25 million).

All of the defendants assert that they did not infringe on the Signal IP patents and at least some have filed counter-claims seeking a judgement of non-infringement and invalidity. Some also are pursuing claims of un-enforceability.

A trial date has not been set yet by Judge Kronstadt.

Relyea said Marathon probably will end up settling the case for a fraction of the money it is seeking. Typically, such cases end up settling for about 10% of potential damages which would be around $140 million to $160 million.

Marathon also may have a major infringement case against Apple connected with the Siri application on iPhones and iPads, Relyea said. Marathon bought the patents at issue from IPNAV.

“It’s in the mix though it hasn’t gone very far yet,” he said.

In the meantime, Relyea said Marathon has mostly downplayed the biggest cases. “There are companies that are resisting infringement actions a lot more than before,” he said.

Apple’s and Google’s recent victories in infringement cases against VirnetX and Vringo come to mind.

Croxall “is a pretty reasonable guy,” Relyea said. “The predictability of the big cases is pretty low.”

Marathon is the first and only patent monetization company to be covered by Midtown Partners, Relyea said.

“Doug changed my mind about what these patent monetization companies are worth,” he said.

Croxall, who owns 305,692 common shares of Marathon, declined to comment for this article.

Spangenberg said his close friendship with Croxall prevents him or IPNAV from commenting on Marathon for this article.

Other major shareholders include Michael Brauser, the manager of Birchtree Capital LLC in Miami, who owns 413,820 shares of Marathon or a 7.14% stake. Investment banker Edward Kovalik owns 3,089 common shares and has option to purchase 10,000 more at $14.89.

To reach the reporter responsible for this article, contact Dan Lonkevich at 707 318-7899 or