October 25 and 26 the second public patent auction, organized by Ocean Tomo, was held in New York. The first one, in San Francisco on April 5 and 6 had, at best, mixed results. 78 lots of patents ranging from material science, automotive industry, bar code scanners/radio frequency identification (RFID), information technology, to name a few, were among the technologies covered.
In the October 2006 issue of Journal of Intellectual Property Law & Practice (published by Oxford University Press) Dr. Hidero Niioka presents a highly critical view on this new phenomenon. Although patents attract attention as high return on investment opportunities, patents are also notoriously unpredictable to put a value on, Niioka observes. Patents were until recently practically only traded by private dealmakers. Such deals are concluded in negotiations, beyond the public eye. Auctions have surely changed that and have made valuation of patents more visible. Dr. Niioka sees an increased interest in commercialization of IP by IP merchant bankers, brokers and attorney firms. In analyzing the results of the first public auction in April 2006 he concludes that the bidding process was a deception, where it only generated US$ 2,75 million for 24 out of the 78 lots sold. The lowest selling price per patent was about US$ 555, the average price for a patent sold, US$ 30,344, hardly enough to cover the costs of the patent.
In an interesting article dr. Niioka, he described the Gold Rush climate that surrounds patents, exemplary by the RIM vs. NTP, Inc case, that ended in a US$ 621.5 million settlement in favor of NTP, a patent holding company. Niioka signals an “information asymmetry” between the seller and a buyer of patents. IP asset transactions give the purchaser, unlike in an M&A transaction, the chance of a more business and investment relevant information than the seller.
In the last paragraph of his article he doubts whether public auctions, like the one Ocean Tomo organized yesterday and today in New York, are a good marketplace for investors looking for valuable patents. Time to get sufficient due diligence is too short, argues the writer, but more importantly whether valuable patents will ever be auctioned. Auctioneering patents is an indication that the seller does not consider these patents any longer as “core business”, not having a reason anymore to keep the patents for themselves. This may indicate that the seller is out of a particular business or that the patents he auctions are “old timers”, not current technology. Niioka observes that it is improbable that large companies will not make an arbitrary choice regarding which patents to pass along to a patent auction. Nobody wants to create their own competitors either, nor do sellers want their patents to be picked up by patent trolls. There are other issues however that dr. Niioka does not mention. To name one: in a public auction one cannot make specific deals, that are possible in private deals, like a provision covering the situation that the seller is being attacked by a third party for patent infringement, where he can still invoke – his formerly owned – patents, now in the hands of the buyer, with his assistance and against a certain remuneration.
Niioka concludes that entrusting a patent portfolio to an IP merchant banker or patent broker or other IP professional is a better and safer way for a patent holder to exploit his IP.