Jon Scahill, the CEO of Quest Patent Research Corp. (QPRC), the nano-cap patent licensing company that agreed to pay $3 million for a portfolio of patents from Intellectual Ventures in October, doesn’t see a bottom in sight for the patent market this year as market observers including Erich Spangenberg have been predicting since the fall.
“The market is reflecting the uncertainty in the legal landscape as it relates to patents,” Scahill said citing the politically charged legislative climate as well as a number of recent Supreme Court decision including Mayo and Alice and more anticipated in the coming year.
Predicting a bottom hinges on when the legislative and judicial climates stabilize, he said. “The lobbyist dollars flowing to the issue will keep patent reform on the docket in some fashion, though we may see the presidential election year crowd the issue out of the spotlight and quiet the calls for reform in the short term.”
Scahill said “the judicial picture is a bit murkier and will really only begin to stabilize as courts continue to grapple with recent and upcoming decisions and create guiding precedent.”
“The judicial system by nature is a slower process and so stabilization, from my standpoint, will likely be a more protracted process on that front.”
Quest posted a net loss of $187,000 for the nine month ended Sept. 30. It also had an accumulated deficit of $14.28 million and negative working capital of $477,414 as of the same date.
At Sept. 30, Quest had current assets of about $40,000, current liabilities of about $517,000. The company has a credit facility with United Wireless Holdings Inc. through which it can borrow up to $1 million for working capital in eight quarterly installments of $125,000 beginning Sept. 30, 2016.
Quest owns or has a proceeds interest in 21 patents and 4 pending applications. Its patents cover a number of technologies including mobile payments, mobile data, online promotions, packaging, semiconductor, and rich media internet applications.
It entered in 17 licensing agreements in 2015 and 32 since inception.
“We did close to one million in revenue last year, but I take a longer term view on our prospects as the majority of our current assets have yet to throw off cash.”
“Right now my focus is on building the portfolio” rather than on achieving profitability, Scahill said. “We run a lean organization which keeps the profitability hurdle low and certainly helps our chances in any given year.”
Indeed, Scahill is the only full-time employee.
In October, Quest raised $1.5 million from a 10% promissory note in the amount of $1.25 million and the sale of 50 million shares of Quest common stock at 0.005 cents a share for $250,000 issued to United Wireless Holdings.
Quest used $1 million of the proceeds as the first installment of its $3 million purchase of a portfolio of patents from Intellectual Ventures. It must make the remaining $2 million in payments Sept. 30, 2016 and Sept. 30, 2017.
Scahill said United is obligated to purchase an additional $2 million in notes on Sept 30, 2016 and Sept. 30, 2017 to fund the acquisition.
Scahill said Quest is always actively seeking high quality assets to add to our portfolio.
Quest looks to work with asset owners to unlock the value of their intellectual property. Each situation is unique with respect to the manner in which the owner would like to realize that value; outright purchase, revenue sharing, cash, stock, warrants or any combination of those and other mechanisms. Each structure has a different risk profile and as such, different economics.
In terms of its active cases, Quest’s subsidiary Quest Licensing Corp., in April and June 2014, filed enforcement actions in the U.S. District for the District of Delaware against Bloomberg LP et. al., FactSet Research Systems Inc., Interactive Data Corp., SunGard Data Systems Inc. and The Charles Schwab Corp. et. al.
In June 2015, the Patent Trial and Appeal Board denied a request for a rehearing of a decision to not institute covered business method reviews of the patents at issue in Quest’s active cases, which were filed by Bloomberg and Schawb in September 2014.
Scahill said Quest has a claims construction hearing in the cases against Bloomberg and Schwab scheduled for February 8, and trial has been scheduled for Jan. 9, 2017.
“We don’t have any other actions pending at this time.”
Quest was incorporated in Delaware on July 17, 1987 under the name Phase Out of America and its core business was the sale of a patented smoking cessation device. In September 1997, the company changed its name to Quest Products Corp. and sought to be a product incubator of sorts acquiring a variety of patents in various areas including the Wynn patent, which relates to a seminal technology in the field of mobile payments.
After an unsuccessful go at developing products the company went dark in late 2003.
Scahill said he joined in May of 2007 with an eye toward relaunching the business as an intellectual property asset manager. He changed the name to Quest Patent Research Corp. and has been building out the portfolio and cleaning up the company since.
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