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All Magic Leap Patents Have Been Assigned to J.P. Chase Morgan as Collateral (kguttag.com)
210 points by contemporary343 24 days ago | hide | past | web | favorite | 102 comments

The title and tone of this article make it sound unusual that the company used its IP as collateral.

You can get better loan terms (such as the interest rate) if your loan is secured. If you are going to get a secured loan, the default is that it's secured by 'all assets', which includes IP. In order to perfect a security interest in IP, you need to make this type of filing -- and a lender will be especially sure to do so when making a secured loan to this type of company because the company likely has little other assets of value with which to secure the loan.

Using patents to secure loans is not new. Most Famously Tesla did it.

What makes it "news" is that Magic Leap was able to raise $2.6 Billion without having to resort to using the I.P. as collateral. It usually does not make the previous investors happy and you usually resort to this when you can't raise money any other way. It is also a one-trick-pony in that you can't do it again and future potential investors know that the I.P. is already gone if the company goes bust.

They just announced a $280M investment from NTT Docomo, but base on my and other people's estimates, Magic Leap was running out of money while burning through about $600M/year so that only bought them about 5 months of runway.

How is magic leap burning through so much cash? It can't be all salaries and at the same time they don't seem to be selling a ton of devices at a loss.

Are they building factories or something?

Nepotism. The people running the company hired all of their friends and family into kooshy do-nothing positions.

I've seen this ! My fav-no-useful positions I've seen filled was a "Business-Analysis" and "UX-Expert(basically a graphics artist)". The B.A spend his days drawing the most useless and not even pretty diagrams of how the "new business" which never arrived was going to work and integrate with our current systems(which he had no clue how they worked or what their limitations were). Lol those graphs and diagrams had more fantasy in them than all of the LOTR combined. Once we got to retrenchments he was the first to go and the loudest to protest of the unfairness !

Sounds like WeWork...

1600 employees. Billions raised. Big hype, but what actually shipped is similar to a three-year-old Hololens.

Do you have any specifics? Who were the friends-and-family hires at Magic Leap?

"Magic Leap is estimated to have over 1,800 employees and 19 office sites."

how would a bank evaluate the risk -- do they generally have an internal team or farm it out to a consultancy? they don't have the history or contacts like VC or google's invesment funds. meanwhile, they are playing footsie with saudia arabia again: https://www.youtube.com/watch?v=iDv2E22Mz0s&feature=youtu.be...

The big banks like this have their hands in everything and connections all over the place. They have their own VC funds, they have investment bankers who specialize in different areas of tech, and they often have their own tech bus dev people in Silicon Valley who are deeply networked with both company founders and VC firms. For a lot of startups, being able to put the JP Morgan/Chase logo on your website as a customer is huge. The founders and VCs know this.

> The big banks like this have their hands in everything and connections all over the place. They have their own VC funds, they have investment bankers who specialize in different areas of tech, and they often have their own tech bus dev people in Silicon Valley who are deeply networked with both company founders and VC firms. For a lot of startups, being able to put the JP Morgan/Chase logo on your website as a customer is huge. The founders and VCs know this.

And it was those very people that were selling their round A. Very competent people they were... :)

I expect the title and tone reflects that Magic Leap had a history/reputation of being able to walk into a room and have money thrown at it for no reason at all, and now it can't do that.

It also shipped in 2018 and has yet to file an S-1 for a public offering.

Typically, once execution risk has been retired (i.e. you are shipping a product), and market risk (or fit) has been retired (i.e. you're getting more demand than you can fill) then you pour in money and grow the company.

So they have been shipping for a year and don't have enough sales to be operationally cash flow positive, and they don't have a good enough story to convince investors that they can get to market success, and they need cash to continue operations.

No, what this note/observation makes clear is that it's that time where either they figure out some problem where their technology has the most value, or they end up selling off the chairs and desks and try to return something to their investors after JP Morgan sells their IP to cover their last loan.

Odds are its about to follow DAQRI[1] into the bin.

[1] https://techcrunch.com/2019/09/12/another-high-flying-heavil...

So did Magic Leap default, or is the loan newly made with JPM to hold the patents while the loan is outstanding? Seems like the IP in this case isn't very valuable to JPM* and this is more just another way to guarantee the seniority of JPM's loan.

* Didn't read the patents themselves, but Oculus, Hololens and others are doing just fine without them. So, hard to imagine they have too much auction value.

It looks like Magic Leap just closed on a new loan in August, not that they defaulted. This filing ensures that if they ever _do_ default, JPM has the rights it expects in the IP as collateral.

There's HQLA like treasuries as collateral, and then there is Magic IP paper as collateral.

Amazing collateral chain these days… anything to keep origination pipelines up, hopefully JPM can securitize enough of this and offload it to a yield chasing pension or something.

Maybe the employees can sell what hasn't been collateralized yet on platforms like: https://softbankfiresale.com/

I'm not a lawyer, but my understanding that the effectively J.P. Morgan now owns the patents (unless a court somehow unwinds the deal) and why the assignment was registered with the USPTO. The patents are then being licensed back to Magic Leap. In this way if Magic Leap defaults, J.P. Mogan simply owns the I.P. like if you pawn something and default on the payback terms.

No, this is a short-form IP security agreement that's customarily used by a secured lender to perfect its security interest in IP collateral. If you want more details, this page explains why these forms are necessary: https://www.whitecase.com/publications/article/perfecting-se....

Ownership does not transfer to the secured lender as a result of this filing.

> The patents are then being licensed back to Magic Leap.

Do you have any evidence for that idea, or are you just making things up?

At the very top of the PDF, it says this is a patent security agreement, which is a common way to use patents as collateral for a loan. JP Morgan will only own the patents if Magic Leap defaults on the loan.

You can read more about patent security agreements here:


It looks like the IP was simply collateral. So as long as Magic Leap repays the loan, they still own the IP. Well, as much as you own a house that has a mortgage anyway.

Yes, I suppose the more salient thing here is that they did take out a large loan to meet their opex while (likely) trying to raise a rather large round to keep going and release the next device. I wonder if softbank's current precarity is causing some general difficulties, independent of Magic Leap's viability. The scale of their cash needs going forward are.. rather large

I couldn't possibly predict how Chase would act with that portfolio if ML failed to recover after this loan, but if past performance/decisions are any indication we'll probably find out very quickly. Important to note that this includes the series of ODG patents they acquired which cover a lot of early industrial AR applications. Wish I knew anywhere close to enough to hypothesize.

The reason it makes headlines is because the value of IP is very volatile and bogus collateral is a very old scam (not only in banking btw, fake valuations are a feature of many scams).

If I go to the park, pick up a rock, and then go to a bank and say there is diamonds inside worth $1m, and they lend against that then I have made $1m. If you lend against collateral, you are making a bet on the collateral being worth $X. JP Morgan have no idea what the IP is worth.

And btw, what is Magic Leap? They have got billions from investors with no product, they have now got billions from JPM with no product...either they have some of the most valuable patents known to man or this is an almighty scam (to be honest, I always hope it is the former because you have to be an abhorrent human being to pull off the latter...but that never is the case).

They released their product months ago.

Did they? I googled "buy magic leap" and all I can find are dev units ("Creator Edition"). That's not a consumer product. That's a pre-requisite for a consumer product. Magic Leap have never released a product for general sale.

You can buy a Magic Leap at https://shop.magicleap.com/

Weird. The developer version is $500 more than the "personal version", but seems to include only the "Developer Hub" (apparently: "[...] a split cable that connects the computer to the power source to enable uninterrupted development time while charging") and support. Is there any other distinction?

The Developer Plus version is $500 over the Developer version, and the only difference is an extra year of priority service. It doesn't look like there any differences other than what you pointed out.

I agree with you ! I know the words for many years (Magic Leap) but I can never remember their product or promise they offer, I spent a fair amount of time on line and reading the news. I've also "missed" their product offering.

At least some of their key patents (https://patents.google.com/patent/US20130128230/en?oq=inassi...) are nearly halfway though there lifetime, so at best those patents will have a decade of value before they get a retail product out the door. It seems a bit like putting a decade old car up as collateral, sure it's got value but it's rapidly diminishing.

Patents have value even if you never get a product out the door.

I was thinking about this... Let's say Magic Leap survives for another 2 years, then defaults. That gives you 8 years left on those key patents. It just doesn't seem like enough time to actually build something and sell it. So like you say, the only real value is in selling it to someone who would like it as part of a defensive portfolio (not too likely in my books)... or using them in a patent troll fashion (suing other people for patent infringement despite the fact that you never intend to use the patent yourself). My question is: Who does JPM think they would sue in this case to justify the value? I wouldn't think there were too many candidates to choose from (both in VR and have piles of cash that you can liberate)...

Apple, Microsoft, Google all have some VR tech and a lot of cash. I wouldn't think they would be a good candidate for patent trolling but they could have some mild interest in buying the IP.

Patents can have value even if you never get a product out the door. Most patents are not worth the money spent getting them in the first place.

While it's true that most patents never get asserted or licensed, I suspect that in a pure sale, very few would go for less than the prosecution cost.

That has not been my experience, on both sides of a transaction.

Sometimes massive libraries of patents are useful (I presume this is why google kept Motorola's patents when they sold the company off) simply because they can be brandished as a counter-weapon when a large company is threatened in a patent battle. But think of it as a sandbag: one grain of sand is negligible and few companies have more than a handful.

The person who wrote this article has a well known vendetta against magic leap. So that explains that.

It’s common to pledge assets as collateral, but I’ve never seen patents actually assigned as a condition for a loan.

This looks pretty strange.

The patents were not assigned. JPMorgan merely recorded a security interest in the patents (although the USPTO does list this as an “assignment”, it’s not). This is completely customary for a secured loan.

You sometimes see secured lenders forego this type of filing since it’s a bit of a pain in the ass, but for a company like magic leap, you would definitely want to do it since that’s where most of the value is.

It’s hard to say more without knowing the terms of the loan. Perhaps they are struggling to raise more equity and had to resort to debt on bad terms, or perhaps it just made sense to raise debt instead of equity and they could do so on favorable terms.

The title is probably wrong. At a quick glance, this looks like an ordinary security interest, not an assignment.

>Magic Leap is estimated to have over 1,800 employees and 19 office sites.

For a company that has no consumer product and has no revenue, to have this many employees is quite shocking to me.

They have had a consumer product out for over a year. You can find it clearly available for purchase on their website: https://shop.magicleap.com/

Huh. I had no idea it was for sale. I'm guessing not many of those two thousand employees are in marketing...

1800 employees and yet not a single reason to own the product. Sad to look back and realize that the huge investment that got at least me excited was in retrospect probably just a hedge bet on AR blowing up.

When you have the money to spend, you find ways to spend it.

Magic Leap is spending somewhere between $600M and $800M per year and that they have burned through all of their initial $2.4 Billion.

Doing what? They've sold a few thousand glasses, and have done a fair amount of R&D. But $2.4 billion? That's 12,000 engineer years.

I’m really hoping magic leap makes it in the long run. They’re a huge tech employer in south Florida, and frankly we could use more tech companies. I’m always afraid a recession will wipe them out and flood the market with experienced engineers.

They won't, because this isn't how you run a tech company successfully. You don't raise billions of dollars, hire thousands of employees, and take several years just to get anything to market. (Nevermind that what they got to market cost a fortune and by all accounts is massively underwhelming.) I can't think of a single successful company that started this way, but I can think of many failures.

They're a hedge bet made by VCs who don't want their LPs asking "why didn't you bet on the obvious market leader?" if AR blows up.

They cannot do anything but fail.

Couple years back when I was dating a girl in Ft Lauderdale, I was looking at companies in Florida. Interestingly enough, it was the only (!) state that was cutting funding for the CS program across its state programs.

Ended up in NYC, and now, Washington D.C.

Don’t think a single company can save the tech economy of a state that doesn’t seem to think its worth the investment. That being said, I love Florida and it would be awesome to build out a tech sector down there.

Newly elected FL governor, in the first 6 months in the office, offered some positive developments in this area.

Computer science and math were addressed explicitly



Highlights of CS/HB 7071 include:

  -    Establishing the “Florida Pathways to Career Opportunities Grant Program,” which provides competitive grants to eligible institutions to create or expand apprenticeship and pre-apprenticeship programs.

  -    Requiring a reverse transfer between Florida universities and colleges to award an associate in arts degree to students who have completed necessary requirements.
  -  Requiring career centers and Florida College System institutions to establish regional career pathways guaranteeing college credit toward an aligned associate degree program for eligible students who graduate with a certificate from a career center.
  -  Establishing the “Last Mile Scholarship Program,” that will pay for eligible individuals to finish their first associate or baccalaureate degree.
  -  Creating increased opportunities for students to take high quality computer science courses in high school by allowing students to count one course as either a require science or required math credit.
  -    Codifying Governor DeSantis’ required audit of career and technical education, from Executive Order 19-31, as an annual requirement to ensure high quality pathways for students.


Magic Leap probably won't succeed, but some of those experienced software and product developers likely will. Maybe ML is just a garden from where dozens of tech companies will bloom?

I do as well. I don't see how as they are burning a hell of a lot of money and it still seems quite far from a broad consumer product. But they have probably pushed up the timeline for AR headsets dramatically with the work they have done. Essentially training up people in the technology so when they quit they can go work for Google and Apple who will likely be the ones to eventually productise this when folks have developed the technology enough.

But who knows what they have up their sleeve for v2...

Sup Guys! Long time Miami native - there are dozens of tech cos: I'm always psyched to meet more people and tell them all about what's going on in miami, feel free to email me: ab@bitsorbricks.com or text me 954-247-1673!

Dudes just trying to be helpful.. no need to pile on the downvotes

> Magic Leap is spending somewhere between $600M and $800M per year and that they have burned through all of their initial $2.4 Billion.

Is it possible for ML to be viable at all? Assuming they manage to make $1000 profit eventually per device, they will need to sell at least half million devices each year. It seems militery usage probably won't be able to fund this alone as the size of US militery is just 1.5M. In US, 40M iPhones are sold each year and one can think of largest possible market for $2000 devices is likely around 5M to 10M per year. So 10% of that is certainly possible if there was a compelling experience device.


> mid-five-figures in unit profit

Their most expensive product only costs $3,290.

You underestimate how the US Military makes purchasing decisions...

You clearly don't understand. If they are selling units to the military for more than COTS, that's illegal.

Let me provide the real facts, instead of your baseless speculations:

Microsoft and Magic Leap were competing on a Army contract. Microsoft won. The contract is $480 million for 100k units. That's $4800 per unit. 4 figures, not 5. The Hololens 1 costed $5000/unit COTS.

Magic Leap's cost proposal couldn't have been far off.

If Magic Leaps most expensive product is ~$3,300... Why didn't they win the contract over Microsoft's $4,800 product? B/c Magic Leaps contract for selling to the DOD was higher than that the products listed on their site.

That's why the military ends up buying hammers for $1000 when you could pick up a higher quality one for $10 from your local hardware store.

> Why didn't they win the contract over Microsoft's $4,800 product?

You are showing your ignorance again: the DoD doesn't make decisions like these based on monetary value alone. Technical merit was likely the deciding factor.

FYI - normal venture debt companies like WTI include IP as collateral as part of their standard deal docs. Just know what you're signing.

You as founder are most likely going to be the one trying to sell your IP if your startup fails and your debt guys will essentially give you a commission to do so.

Wow. You think Jimmy would have learned after getting hosed down on WeWork...nope.

Just anecdotal but JP Morgan appear to be involved in quite a few shitty deals this cycle. I know they are going hard in syndicated loans, which is very hot right now, wonder what we will find out when the tide goes out.

Looks like his server is in damage control, Web Archive has a copy but is in the same state for me: https://web.archive.org/web/*/https://www.kguttag.com/2019/1...

Thanks for providing the link to the archive.

I have up the capacity, but when the cite hits #1 on Hacker News (as it is right now), it looks like the traffic is still overwhelming. It probably does not help that I put the larger associated document for people to download (I was going to put a link up but the link was not working in the Chrome browser).

Thanks Karl! Seems like it is fine now.

Interestingly when I have gotten credit from Silicon Valley Bank they have always secured the debt with all the assets excluding IP. Why? Because they can't do anything with the IP while I presumably can find a buyer and pay them back.

I'm amused that anyone ever took Magic Leap seriously. It's basically Apple's Newton; a good idea without the tech, without the infrastructure, without the content to sustain it and make it useful. Check back in after 10 years.

Newton's second release of hardware and software was actually pretty solid. It needed some user training (there were many features that simply weren't discoverable, but were slick one you knew), and it was expensive.

It certainly wasn't a toy with a couple half-baked demos and no actual apps. There was a healthy third party hardware and software developer ecosystem. A lot of people (including me!) wanted to see it work, and it was frustrating to have Jobs kill it right when it was getting traction.

I wanted to see it work too; I bought one! But in retrospect I think it's clear that it was a product that was about 10 years before its time. Once it was possible to build something (iPhone) about 5x smaller, about 10x faster, with about 100x the connectivity, and about 10x the display resolution, that's when it really took off.

Well, the Newton at least went to market with a consumer-facing product. That's one up on Magic Leap.

Yeah, but imagine getting in on Apple when the Newton was the big thing, and then staying for when the iPad was the real thing.

What happened to them? They were in the news a lot for a while but lately it’s totally quiet . I thought they finally had released something. Has anybody tried their tech?

Yeah, they have a devkit you can get. Its neat but with no install base and Hololens looming over them, there's not much to talk about.

Magic leap founded in 2010

Raised $2.6 Billion

Revenue: $0?

It wouldn’t be $0, since they have likely sold a few tens of thousands of dev kits. Gross profit on those devices is likely zero or worse though.

> a few tens of thousands of dev kits

I'd be willing to bet that it's more like a few thousand at most. Does anyone here know anyone with a Magic Leap One (maybe yes, since this is Hacker News, but still...)?

Fair. Karl is probably close to the mark with his estimate of 5-8k. I would also guess that the vast majority of those are in the hands of other companies in the AR space rather than end-users of AR experiences.

^ this. I am unable to buy a pair (in London), but I have some loaned to me from ML so I can help someone deliver a product (for festivals, not the store/consumers)

Both these things continue to point toward the hype machine over mass market/sales/consumer consumption

A developer friend of mine has a pair. They’re pretty underwhelming. It basically creates a small rectangular overlay in the centre of your vision. Far from the fully immersive experience I was expecting.

> Far from the fully immersive experience I was expecting.

That's because they were advertising a fully immersive experience. In reality, they did what Microsoft has done with HoloLens anyways, just worse.

So what is up with AR?

The way i naively imagine startups work is that they identify a market, develop a product for that market, then sell the product to the market.

So where have the AR startups gone wrong? Did they not actually identify a market? Does the market turn out not to exist? Have they not been able to develop a product that adequatly fits the market? Are they unable to sell a perfectly good product to the market for some reason?

As an outsider taking a quick look, this reminds me of the Apple Newton.

- Hard problem, immature technology that barely works as yet.

- Correct strategy would be vertical markets that have a particular need of the product, would pay enough per unit to pay for the R&D, would put it in the hands of professionals who can be trained to work around the inevitable bugs.

- Company instead unwisely aims straight for the consumer market.

If any wanker goes on about Theranos but didn't call out Magic Leap years ago delete them from your feed.

And ML still goes on.

We know its technologically impossible yet people still go on like its something.

But the sad thing is, it's hard to say the actual value of the patents, to ML nothing but as a troll maybe a fair bit.

How did they ever raise such capital?

I want in on it. Capex for R&D is prohibitive.

A company I used to work for was recently acquired because they were supposedly working on some kind of block chain technology. After the acquisition, all ‘work’ on the block chain was stopped and everyone reassigned to other, more mundane projects. Word is, the ex-CEO somehow sweet talked the acquirers with some fancy PowerPoint slides. He spends most of his time coming up with these proposals and shops them around to unsuspecting VCs and acquirers. Took him a few years but seems like he finally got one to bite.

I suspect many smaller tech firms are similar.

A buddy works for a permanent startup. Has never shown a profit. He's convinced it's a money laundering operation. He likes the work, so he doesn't ask too many questions.

Did this individual used to work in the identity space? Canadian?

I interviewed with a company that matches this description, I remember thinking their product sounded pretty silly.

The Softbank Vision fund is a very interesting and strange beast.

Created by a risk junkie, funded mostly by governments hoping to mix profit with prestige, and ultimately likely to implode as part of the next tech bust.

Great marketing and lot of suckers who bought into the Hype.

Lol, I thought the same, here I am bootstrapping - the things I could do with 1 percent or even 0.1 percent of that money.

> How did they ever raise such capital?

Access to a good network. It's not like cash isn't available these days. It's just that you have to treat networking as a full time job and hone the craft just as you would anything technical.

Its called hype - hype around VR/AR specifically.

Ehh, its more than just hype. They have a device that exceeds the Hololens. Its not vaporware.

This is a recordation of a security interest, not an assignment.

The patents show as Assigned to J.P. Morgan Chase.

I'm not a lawyer, but I think it was done this way so the I.P. would immediately become J.P. Morgan Chase's in the case of default. We don't have access to the contract between Magic Leap and JP Morgan Chase to know what the exact terms and condition.

Regardless, whereas before Magic Leap was able to raise money without putting up the I.P. as security for a loan.

No, this looks just like any other recorded security interest.

As expected. I don’t feel they will ever deliver anything.

This is just an anecdote, but everyone and everything about Magic Leap has always struck me as pretentious, elitist, and ego-driven.

I walked by their booth at GDC a couple years ago, and tried to struck up a conversation with the representatives. I was essentially shooed away and given a sticker.

Later on that night, an invite to their Magic Leap party was sent to a telegram channel with an open invitation to 'come hang'. The only problem: the invite was sent 10 minutes before it was wrapping up, almost like a "look at our party you aren't invited to".

if they sent an invite 10 minutes before it was wrapping up it's because nobody showed up lol

We walked by the venue earlier that night and saw a pretty buzzing party (with lots of security).

Remarkable how banks just, always win.

Big businesses taking over, yet again.

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