Documents: Magic Leap Assigns All Its Patents to J.P. Morgan Chase as Collateral for a Loan
Official documents have emerged online in the last few days showing that Magic Leap assigned all its patents to the US bank JPMorgan Chase in August as collateral for a loan of an undisclosed amount. JPMorgan Chase is one of Magic Leap’s big-ticket funders and will be participating again in the company’s upcoming fifth round of financing which has already been announced. Magic Leap has stated that the borrowed money will constitute equity after the scheduled round of financing.
The patents were assigned more than two months ago and the event went largely unnoticed. The initial source for the information came via the AR MR XR Sub-Reddit. The Reddit user u/LegendOfHiddnTempl discovered that the USPTO was now displaying all of Magic Leap’s patents as assigned to J.P. Morgan Chase as a collateral. The patents shown as collateral include even the Osterhaut Design Group (ODG) patents which Magic Leap had acquired early this year through its shell company Mentor Acquisitions.
From the official USPTO website, the assignment as collateral occurred on August 20th, 2019 and the information is publicly available. Information so far seem to indicate that all of Magic Leap’s Intellectual Property have been assigned including the recently acquired former ODG patents.
The 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 Leap to announce the next-round of funding before it could even be completed.
Magic Leap was prompted to put its IP as collateral in exchange for a loan. The company’s last fundraising round had been in April 2019 when it announced that the Japanese mobile phone operator NTT Docomo had invested $280 million in addition to other funding deals by SK Telecomm and AT&T.
The High Cost of Running Magic Leap
Magic Leap has 19 office sites and a staff of 1,800. These employees earn top salaries that usually run in the region of $250,000 or more in salaries, benefits as well as office/facilities/equipment per employee every year.
The senior R&D staff at Magic Leap cost even more money. Even where it costs Magic Leap less money to retain low-cadre staff such as technicians, the equipment they use is still very costly. Magic Leap is also spending money heavily on SG&A with huge marketing and facilities efforts. When you sum all this up, it is clear Magic Leap is spending a fortune to keep its operations running and the company has already burned through its initial $2.4 billion investment. The $280 million that Magic Leap raised from NTT Docomo can only cater for a few months of operation.
Magic Leap Sold Less Than 2,000 Headsets So Far?
Industry estimates have so far put the number of Magic Leap headsets sold so far as somewhere between 5,000 and 8,000 units. If that figure is accurate, then Magic Leap has spent approximately $300,000 sold for every unit of headset sold. This works out to more than 100 times the selling price of a Magic Leap One headset. The sales might also have stalled with the launch of the Microsoft’s HoloLens 2 headset which is Magic Leap’s key competitor. Tech website MIXED.DE , on the other hand, estimates that Magic Leap has sold less than 2,000 Augmented Reality headsets quoting “insider sources”.
Magic Leap might have promised users too much and too fast and unfortunately, it has so far not lived up to the expectations. Magic Leap seriously underestimated the challenge in developing cutting edge AR glasses and taking them to the mainstream. By the end of 2015, Magic Leap boss Rony Abovitz was announcing that the company was preparing to build millions of augmented reality headsets but the idea soon proved to be technically unworkable.
Abovitz has recently announced that Magic Leap is currently working on follow-up augmented reality glasses with 5G streaming that are set to be released within the next two to three years. Additionally, Magic Leap is also planning to launch the Magicverse infrastructure for the augmented reality cloud.