Engaging Patent Brokers

Suppose you wish to sell your house. Since you seek to sell your house “as-is”, you want to minimize your investment in the selling process and elect not to spruce up your house. To avoid paying a real estate agent commissions, you independently put your house on the market. While some lookie-loos avail themselves of the wine and cheese you serve at your open houses, no serious buyers emerge. The months tick away and, before you know it, you miss the sizzling summer selling season. However, the buying community—consisting of local potential buyers and real estate agents as well as online real estate market places such as Zillow—notices that you failed to attract a buyer. Your house is perceived as an increasingly stale damaged good.

You eventually realize that you have no choice but to retain a real estate agent. Since you are very busy, you do not want to waste your time conferring with a lowly real estate agent. You think, “Isn’t it the job of a real estate agent to sell my house? Since I am prepared to pay a healthy commission at the closing, I simply can’t justify investing time with agents. While I could have provided a lot of nuanced selling points relative to the house, my agent will just have to figure out the selling proposition herself.” Unsurprisingly, not every real estate agent jumps at the opportunity to market your house.

A similar situation often occurs in the world of selling patents. But the plight of the patent broker is much bleaker.

Premature marketing

Premature marketing on the part of unprepared patentees tends to spoil markets sparsely populated by buyers. As everyone in sales and marketing knows, you don’t get a second chance to make a first impression. Further, many patentees are of the mindset that it is the responsibility of the patent broker to invest tens of thousands of dollars preparing marketing documents, patent valuation reports and claims charts on their behalf. These out-of-pocket expenses are on top of the patent broker’s time, travel and overhead costs allocable to clients.

The expenses borne by patent brokers pale in comparison to the efforts they make hustling patents. Selling patents is much more difficult than selling houses. The former is much more nuanced than the latter; much more work is required to understand patents. Patent brokers actually lose money in the first months of their engagements as they invest considerable time in learning about the specific patents, technologies, markets, and extent of infringement. Great effort is expended in surveying the landscape in order to identify potential buyers, who are more effectively engaged when patent brokers tailor value propositions to each buyer’s specific situation. In a sense, patent brokers are more invested at the outset of seller-agent relationships than sellers since sellers can remain on the sidelines until buyers begin negotiating. Since the community of patent buyers, sellers and intermediaries is much more diffuse than is the case with real estate agents, patent brokers do not enjoy the efficiencies associated with repeatedly working with the same players. Patent brokers are under more pressure to execute patent transactions because each day that passes brings the day when the subject patents will become worthless one day closer.

Obviously, the patent broker takes on enormous effort, risk, and expense soliciting buyers for patents. When a deal is concluded flawlessly, there is still a long time between when the patent broker begins marketing the subject patents and when he receives his commission.

Sufficient interest?

However, in many cases, patents just do not attract sufficient interest among potential buyers for deals to close. Quite often, no one has any interest in learning about the patents being marketed. In other situations, patents do attract interest from buyers but sellers get cold feet and withdraw their offers to sell. I am aware of a situation whereby a patentee’s new Intellectual Property Manager simply decided that she did not want her company to use patent brokers anymore; the result was that that company’s patent broker was left at the altar with a stranded buyer. Unfortunately, sellers often refrain from showing their patent brokers the slightest courtesy—some patentees fail to respond to their brokers’ emails and phone calls even when the brokers are proffering up buyers. In these and similar cases—despite investing a not insignificant percent of their careers marketing clients’ patents—patent brokers receive no commissions even though they deliver buyers willing to pay patentees the consideration initially sought. Patent brokers receiving consideration in any form for the value-added services they render—such as introducing the patentee to a buyer who ends up acquiring the patentee’s company rather than just its patents or by facilitating acquihires—is invariably a pipe dream.

Coup de Grace

Even when patent sales close and patentees receive their funds, patentees do not always fulfill their end of the bargains. In other words, some clients stiff their patent brokers. As one licensing executive at a large Silicon Valley-based electronics company told me, “the higher a patent broker’s commission, the more reasons one can find for not paying.” Even in these situations, patentees sometimes deliver their coup de grâce by lambasting not only their particular patent broker but the entire community of patent brokers.

Certainly, many patentees behave completely honorably with their patent brokers. And there is less risk that contingency litigators, compared to patent brokers, will be jilted. However, losing one hard-earned commission should not be tolerated. In any event, how should patentees manage their relationships with patent brokers?

First, if a patentee is uncomfortable working with patent brokers, he should simply refrain from engaging patent brokers. If a patentee can sell his patents by himself, then by all means he should do so. If a patentee can sell his patents quickly, at a high price and without paying a broker a commission, then he absolutely should manage the transaction by himself. The reality is most people cannot sell their houses by themselves. Neither can many patentees independently sell their patents.

Second, patentees that elect to work with patent brokers should treat them with respect. This is not necessarily a magnanimous gesture but a practical consideration. There are millions of issued patents and patent applications. Almost all patent owners would like to monetize their patents in some fashion. The problem is that there are very few patent brokers (roughly twenty throughout the world by my count) that have records of successfully monetizing patents. (Many who call themselves patent brokers are really seeking full-time employment elsewhere. Others believe they can just work their own limited networks without making necessary investments in things like databases. One risk of engaging with these transitory patent brokers is that when they land their next positions, efforts to monetize your patents will come to a screeching halt.) The reality is that for the best patent brokers the volume of inquiries from patentees interested in selling their portfolios exceeds the broker’s bandwidth.

A Few Ideas

Whatever agreements that are negotiated between patentees and patent brokers in good faith and that are upheld are fair game. However, a few ideas for the two parties working in at least a semi-harmonious fashion include:

  • Just as a homeowner is often well advised to apply a coat of paint and to plant flowers in his front yard before showing his home to prospective buyers, patentees should prepare (or have prepared at their expense) marketing documents, patent valuation reports, claims charts or the like.
  • Patentees should be prepared to execute deals that meet predetermined targets. It is simply not fair to encourage a patent broker to shop a patent portfolio around the world for what turns out to be more than a year only to back out of deals that meet predetermined thresholds. If such deals must be avoided, the broker is entitled to some combination of retainer and success fee.
  • In return for paying a lower commission on success, the patent broker should be offered some cash (or stock) retainer. When the patent broker stands to receive a very high commission at the close, patentees often take the attitude that they need not make any effort to educate or assist the patent broker. This stance repels cooperation, to the detriment of closing a transaction. Paying the patent broker during the course of his marketing efforts helps keep the agent focused on the assignment at hand: The absence of retainers often turns a loss of deal momentum into a dead deal. (One equitable retainer arrangement calls for paying larger retainers at the beginning and ends of the engagements when most effort is exerted. Lower retainers can be paid in the middle months, when the broker is waiting for responses from solicited potential buyers.) Further, buyers are often skeptical of buying patents from inventors. These buyers are concerned that the inventor / patentee is too emotionally wedded to his patents and will not relinquish them even if the buyer makes a generous offer. Patent buyers are too busy to risk spending months on a deal only for the patentee to withdraw his offer to sell. When buyers learn that the seller is paying a (monthly) retainer, they begin to believe that sellers are more likely to agree to reasonable offers if for no reason other than to end the pain of paying regular retainers.
  • Both buyers and sellers should consider referrals to successful patent brokers through my new service, com. While I can’t promise that I will feel comfortable introducing every proffered patent to an aligned patent broker, I work with many patent brokers and do what I can to place patents in the hands of patent agents that have brokered similar patents with buyers and licensees.

by: David Wanetick, Director, Certified Patent Valuation Analyst & Author, Business Model Validation