auctiopAn interesting piece by Jackie Hutter over at the IP Asset Maximizer Blog uses some narrow empirical data offered by Marcus Malek of the Intangitopia Blog to dispell the notion that intellectual property auctions have provided any benefits for individual inventors or patent holders.  The piece was written in response to this NY Times article by Steve Lohr, which claims that “patent auctions offer protections to inventors.”  Ms. Hutter “wonder[s] if the fact-checkers took a break when this article was presented for publication,” adding that the article is full of “credulous conclusions” and “misleading characterizations.”  While I respect Ms. Hutter’s view on everything that is IP strategy, I’d like to take this opportunity to share a different opinion of the article, and of the value that patent auctions have provided to the IP marketplace today. 

The article begins with the following announcement:

The world can be a rough place for independent inventors. They can often find themselves in court, battling big corporations, spending piles of money on lawyers and leaving it up to judges and juries to determine the value of their hard-won patents.

As Ms. Hutter correctly points out, “[t]he story of the lone ‘David’ inventor battling in court against the evil ‘Goliath’ corporation that steals a patented idea not only does not occur “often,” relative to the number of patents issued each year, it almost never occurs . . .”  However, this is the only “credulous conclusion” that I can find in the article.  Instead, it sheds light on a burgeoning marketplace for intellectual property that, ever since and as a result of the first Ocean Tomo IP auction, has experienced an influx of what I call “IP Market Players”, including, as the article points out, “a flurry of new companies and investment groups . . . to buy, sell, broker, license and auction patents.”  The NY Times article goes on to add that, “[t]he arrival of these new business-minded players . . . could lead to a robust marketplace for patents, where value is determined not so much by court judgments but by buyers and sellers, perhaps, someday, like eBay.”  This statement is not so far-fetched.  It is not a myth that the market for buying, selling, investing, and strategic management of intellectual property has been born in the last decade.  I will go out on a limb and add that this marketplace, with all of its new market players, owes part of its inception to the initial success of the patent auction platform.  I agree with Ms. Hutter that “this transaction model has [not] served to markedly increase the number of sale opportunities for any patent owner,” at least not directly.  The dismal statistics from the last 3 Ocean Tomo auctions highlights that.  However, it was this model that opened eyes to other market players that there is opportunity in this marketplace to lend transparency to potential sellers and buyers.  As the article points out, as a result we now have IP market players providing these opportunities, such as Intellectual Ventures, Rational Patent Exchange, Allied Security Trust, Acacia Technologies, Altitude Capital Partners, Intertrust, IPotential, Ocean Tomo, Rembrandt IP Management and Thinkfire

While the NYT article may assume a little much regarding the “one-size fits all” approach for patent auctions, I don’t think the article was making any credulous conclusions about patent auctions providing automatic protections for inventors (after all, the term “protection for inventors” was really only used in the title.)  Instead, I think it was a nice general comment on the recent growth of the IP marketplace, and where it might be headed.  The last three paragraphs warn of the problems with valuation that the market needs to face, and it offers not that patent auctions are here to stay and provide liquidity for all inventors alike, but only that the market “could be changing” - a true statement. 

The statistics of recent patent auctions have sparked a somber mood with many IP professionals regarding the status of this platform, while just 3 years ago the mood was optimistic as the sales generated by these auctions surprised a few people.  I submit that, while the patent auction platform may not be the answer for a robust marketplace, it provided a push for those ready to get involved, and there are more opportunities for inventors and patent holders now than there were a decade ago.  The fact that ICAP, one of the largest brokers in the world, has now opened a patent brokerage group is a testament to this.  There is no reason to believe the market won’t continue to take shape, especially with intiatives like Open Innovation, patent pools, and defensive aggregators.  I know Ms. Hutter shares this optimism with me, as she adds that she “believe[s] that we will see the market for patent rights evolve somewhat in the near future as Open Innovation becomes a more prevalent product development model for US and foreign corporations. That is, when more corporations look outside their own organizations for innovations, more opportunities will exist for IP owners in a wide variety of technology areas.”

This entry was posted on Friday, September 25th, 2009 at 8:27 am.
Categories: Burgeoning Business, Patent Prospects ~ by Ian McClure.

2 Comments, Comment or Ping

  1. I concur that that a more open patent market appears on the horizon. For this market to develop it needs a good dose of information transparency to attain any kind of realistic transaction velocity.

    I remain agnostic on discussions on the role of non-patent entities in setting the economic value of IP assets. Organizations that are focused solely on monetizing patent assets are clearly going to have no other agenda. They are not focused on competitor issues, manufacturing issues, patent fees and maintenance concerns. They are strictly concerned about maintaining and exploiting the value of their asset.

    The results of many of the auctions to date is a by product of a lack of easy to understand economic and technical data to allow people to make their own determinations on value issues.

    This brings me to information transparency. Why is so much effort spent on hiding ownership of these important assets? Why do you need to hire Columbo to search the Nevada State Secretary database to find new the ownership of entities owning portfolios of patents? (Why do these guys use such goofy names?) Why is the patent number involve in a high value transaction or infringement case never part of the information reported by the Wall Street Journal or the rest of the business press? Why is it that the organizations that buy and sell patents feel that the price needs to be a secret?

    If you want IP transaction velocity which leads to a vibrant marketplace, you need information transparency. Think stock market, bond market, gold market. Information transparency. That’s the next frontier.

  2. Ian McClure

    I couldn’t agree more. I have been saying for years that “transparency is key” to this market. The confidentiality that absorbs so much of these transactions is a by product of the current legal regime and the stigma that patents are meant to keep others out, instead of furthering invention and innovation. Only time will tell if a true “open” market can form, with price discovery and complete information for all buyers and sellers to gauge their own positioning accurately.

    Thanks for the note.

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