Is the augmented reality magic fading down in Plantation, Florida?
That's the first question some may be asking following a casual revelation over the weekend that Magic Leap, the maker of the Magic Leap One, has assigned much of its patent portfolio over to JP Morgan Chase as collateral.
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In documents filed with the US patent office on August 22 and signed on August 20, a massive 1,903 patents from Magic Leap (as well as from Magic Leap holdings Mentor Acquisitions, LLC and Molecular Imprints Inc.) were all assigned to JPMorgan Chase (and then assigned to Citibank in the first week of November). The document (see below), which is a patent security agreement, is signed by Magic Leap CEO Rony Abovitz and JP Morgan Chase collateral agent Eleftherios Karsos.
In many cases, such an agreement allows the patent holder to use their patents as collateral. If this sounds familiar, that's because it's exactly what happened to Meta Company back in 2018, as Next Reality revealed in its exclusive report earlier this year. Not long after, the company went belly up, and was subsequently acquired by a new investor.
"Typically, a creditor records a 'security interest' in a patent when the patent is pledged as collateral," patent attorney Andrea H. Evans told Next Reality at the time. "For example, if a loan was taken, the lender will take a security interest in the patent as collateral against repayment of the loan, and to ensure their compliance against the loan."
In this case, the patent assignee, JPMorgan Chase, is a member of the company's funding family, as the New York-based bank was a part of Magic Leap's Series D funding round last year, along with Alibaba Group, Google, Axel Springer Digital Ventures, Saudi Arabia's Public Investment Fund, and others.
The patent shuffle was surfaced on Sunday by a Reddit user who spent some time digging around the Magic Leap's patent portfolio.
Although in past years Magic Leap has been touted as having a long runway given its billions in funding, earlier this year the company was compelled to raise $280 Million from Japan's NTT Docomo, although at the time the relationship was framed as a partnership. As for Abovitz and his team, while the tweets and the blog posts keep coming, things have been fairly quiet in terms of new announcements from the startup. In fact, most of the big news in recent months related to Magic Leap has revolved around its lawsuit against a former employee who is launching a competing product under the name of Nreal.
On Twitter, just prior to signing the collateral agreement, Abovitz wrote, "Magic Leap One Creator Edition has been in the world for 364 days." And while that one year mark may be meaningful to Magic Leap's founder, it doesn't change the fact that the rest of the industry's players are beginning to crowd the field.
From small startup Tilt Five, which launched its AR gaming device Kickstarter (and raised over $1.7 million) just days after Abovitz's tweet, to the Microsoft HoloLens 2, which finally began shipping last week, Magic Leap is facing a growing army of competition for the future of augmented reality.
There's little in the way of numbers concerning Magic Leap's sales of the Magic Leap One, nor have we heard much about a more consumer-friendly version that has been promised in the past, therefore, this latest news will likely lead some to start the clock on the company's possible demise. Normally, given the heavyweight investors involved, such a fate would seem unlikely to pass any time soon. But in this case, the drastic measure of Magic Leap using its patents as collateral indicates that, financially, things may be far more dire than anyone had imagined.
Update: A Magic Leap spokesperson has responded to Next Reality's request for comment with the following statement:
"Magic Leap is in the midst of a significant financing round, which will become our Series E when complete. We have already closed a major portion of this round, some as equity and some as convertible debt that will become equity when the round is complete. The participants in this round include existing investors, new investors, and strategic partners," a spokesperson for Magic Leap told Next Reality.
"Magic Leap has been expanding internationally and now has distribution in the US and Asia with additional regions to follow soon. In addition to growing market share, we are currently productizing our 2nd generation device and the Magicverse, and are growing our content and developer ecosystems."
Unfortunately, that statement doesn't directly address our questions regarding the company's decision to enter into the patent security agreement with JPMorgan Chase. Nevertheless, the statement does indicate that there are still plans afoot to introduce a new, possibly more consumer-facing, Magic Leap product in the coming months. However, to do that, it's now clear that Magic Leap will need to create more financial runway for itself or risk being grounded just as other major AR players take flight.