All Magic Leap Patents Have Apparently Been Assigned To J.P. Chase Morgan As Collateral

Just A Quick Note Today on Magic Leap 2+ Month Old News

Things have been very quiet lately with respect to Magic Leap. So quiet, that apparently the assignment of all of Magic Leap patents over 2 months ago went unnoticed. Except for a few users trying to keep it alive, the Sub-Reddit on Magic Leap pretty dead for many months. The initial source of information for this article came from a post the AR_MR_XR Sub-Reddit. Reddit user, u/LegendOfHiddnTempl found that USPTO is now showing all Magic Leap patents to be assigned to J.P. Morgan Chase as collateral. The patents include the former Osterhaut Design Group (ODG) patents Magic Leap acquired via Magic Leap’s shell company Mentor Acquisitions earlier this year.

I checked on the official USPTO website and sure enough, the assignment as collateral document was executed on August 20th, 2019 and is publicly available (copied here). I have cut and pasted a few key parts of the 451-page document listing all the patents and applications that have been assigned. I have not checked every patent, but it appears to be all of Magic Leap’s I.P. including the former ODG patents.

Apparently Magic Leap needed to put up their I.P. as collateral for a loan. As recent as April 2019, it was announced that NTT Docomo had invested $280 Million on top of deals with AT&T and SK Telecomm. Magic Leap is estimated to have over 1,800 employees and 19 office sites.

Employees of high-tech companies doing work like Magic Leap typically run about $250,000 or more of salary, benefits, office/facilities/equipment per employee per year. Senior R&D people can cost even more, but even if technicians are paid much less, the equipment they run is often very expensive. Then you have the SG&A on which Magic Leap appears to be heavily spending with a lot of marketing and facilities. When you total it all up, most people I talk to think Magic Leap is spending somewhere between $600M and $800M per year and that they have burned through all of their initial $2.4 Billion. The $280M from NTT Docomo only funds about 5 months of Magic Leap’s burn rate. It is sad to me that multiple startups could have been funded with all that money, but big companies often only get a thrill out of big investments.

There are no well-document estimates for how many units Magic Leap has shipped to date, but most educated guesses are that Magic Leap has shipped between 5,000 and 8,000. This works out to over $300 thousand of investment per unit or over 100 times the selling price. Its also unlikely that Magic Leap is making much if any per-unit profit. One would expect that any sales have stalled as the unit is now about 1 year old and Microsoft’s Hololens 2, Magic Leap’s most direct competitor, was announced earlier this year.

Apparently Magic Leap is running out of Saudi Princes and high ego Telco executives and has had to put up the “silverware” (I.P.) as collateral. I have not been able to find how much money J.P. Morgan Chase loaned to Magic Leap, but I would guess that it is under $1 billion. Unless Magic Leap has also raised money from other sources, one would expect that Magic Leap should have been taking actions, including major layoffs, long ago, maybe they already have done so quietly.

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Karl Guttag

26 Comments

  1. It doesn’t seem like Magic Leap is running out of money based upon all the new hires. Layoff info would be impossible to keep secret in the age of LinkedIn.

  2. […] All Magic Leap Patents Have Been Assigned to J.P. Chase Morgan as Collateral 6 by contemporary343 | 0 comments on Hacker News. […]

  3. […] All Magic Leap Patents Have Been Assigned to J.P. Chase Morgan as Collateral 6 by contemporary343 | 0 comments on Hacker News. […]

  4. […] All Magic Leap Patents Have Been Assigned to J.P. Chase Morgan as Collateral 6 by contemporary343 | 0 comments on Hacker News. […]

  5. The drums of Mordor sound: doom, doom, doom….

  6. So what does this mean in practice? Do the patents usually get sold by the financial firm to other tech firms?
    In other words, should we expect Microsoft, Apple and Google to buy some of these patents?
    Or do the financial firms merely “keep the patents hostage” until Magic Leap payes their depts?

    • To a first approximation, the patents are being mortgaged to secure the loan. Magic Leap likely (depends on the civil contract) keeps control and “owns” the patents unless they default. From what I am told, Chase needed to register the transaction in order to perfect their standing. By having the “Assigned to Chase,” it means that if Magic Leap goes under, Chase gets control of the patents.

      My understanding is that patents acquired this way are usually sold off, often to what are known as “non-performing entities” (NPE) (more derisively called “troll companies”) which are often companies set up for the sole purpose of licensing patents. Patents are a “negative right” in that they give the holder the right to prevent another company/person from doing something. By being non-performing entities they have the ability to harass companies making products, but the product making companies can’t hit back as there is no product to prevent from being made. NPEs often don’t care about the quality of patents as their purpose is to have companies pay them to go away, they just want lots of patents that they can claim are violated by companies that have money.

      • More importantly, that means that all the equity investors (non-debt) get nothing (at least none of the patents which are the core of the IP value) if the company fails. And it means those equity holders had to sign off on that debt deal with Chase. Which is far far from ideal for the equity holders. So maybe a bit desperate. Or…maybe there are some capabilities (rights) for the company, or other investors, existing or new, to buy out that debt and get the patents back to the company (and thus the equity holders).

      • Thanks,

        “And it means those equity holders had to sign off on that debt deal with Chase. ” That is what I meant by “not fun.” :-).

      • That sounds worse for the competition than if ML were to keep the patents. At least ML doesn’t have much experience with patent trolling (only hoarding).

      • Sadly, this may come to pass. Magic Leap and its IP subsidiaries are said to have about 3,000 patents. By setting up the I.P. subsidiaries, it may be looking at getting into the troll business.

    • yes , it happens … but only to a certain class of companies .. the desperate , no other
      avenues for financing … and having your reproductive organs all tied up …
      kind of like the last rotation of a death spiral … not good .. gace

  7. […] have received more information from multiple sources as a result of my story, All Magic Leap Patents Have Apparently Been Assigned To J.P. Chase Morgan As Collateral. So this article is following up on that […]

  8. […] that the business has assigned the right to its most valuable assets to JP Morgan Chase. It is speculated – speculated, we stress – the patents were put up as some sort of loan […]

  9. […] that the business has assigned the right to its most valuable assets to JP Morgan Chase. It is speculated – speculated, we stress – the patents were put up as some sort of loan […]

  10. […] report on the patent deal was first published by the Augmented Reality blogger Karl Guttag and it quickly went viral after it was taken up by various tech news websites which forced Magic […]

  11. […] that the business has assigned the right to its most valuable assets to JP Morgan Chase. It is speculated – speculated, we stress – the patents were put up as some sort of loan […]

  12. […] More info (Magic Leap putting its IP as collateral) More info (ML raising E round of investments) More info (Twitter comment on IP as collateral being not uncommon) More info (Magic Leap’s complicated sales situation) More info (Abovitz excited by ML 2) More info (Scott Henry and John Gaeta leaving the company) More info (Ian Hamilton’s irony on the situation) More info (Robert Scoble’s comment on the situation) […]

  13. […] that the business has assigned the right to its most valuable assets to JP Morgan Chase. It is speculated – speculated, we stress – the patents were put up as some sort of loan […]

  14. […] that the business has assigned the right to its most valuable assets to JP Morgan Chase. It isspeculated– speculated, we stress – the patents were put up as some sort of loan […]

  15. […] report on the patent deal was first published by the Augmented Reality blogger Karl Guttag and it quickly went viral after it was taken up by various tech news websites which forced Magic […]

  16. […] All Magic Leap Patents Have Apparently Been Assigned To J.P. Chase Morgan As Collateral […]

  17. […] simple calculations which (explained in Magic Leap Patents Have Been Assigned) showed that Magic Leap was going to need more money in 2020. The question was, could they find […]

  18. in this crashing economy now- finance experts are saying to invest the extra money and some are saying to keep the extra cash with you for the unpredicted future ahead. god knows what will happen.

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