TerraCaptus LLC

How To Sell Your Patent in a Changing Patent Marketplace

Patents continue to be one of the most valuable but illiquid types of assets a party can own. Only recently have organized efforts been made to enable buyers and sellers to connect to purchase and sell patents. To date, there exist five primary manners of selling patents: direct contact and negotiation between patent sellers and buyers, use of patent brokers or other representatives (hereafter referred to only as “brokers” for ease of discussion), website-based announcements by patent owners, in-person public or private patent auctions, and on-line patent auctions.

  1. Direct Contact Between Sellers and Buyers Patent owners are often well aware of parties with whom they compete, and of parties who may be interested in purchasing a given patent. Despite this knowledge, patent owners rarely take steps to contact potential purchasers directly. This is often due to the lack of time and resources of the patent owner necessary to identify potential purchasers, establish communication with such parties, and negotiate a reasonable price for the patent. In many cases, patent owners are unfamiliar with a number of parties who may be interested in purchasing their patents, including parties with whom the patent owners do not compete but who nevertheless value the patent owners’ patents. Also, many patent owners lack experience in selling intellectual property, the necessary understanding of the relevance of their patents to other parties, and/or the overall value of their patents. As a result of these impediments, patent sales by patent owners are typically not a desirable option for most patent owners.

  2. Patent Brokers A much more common manner of connecting patent buyers and sellers is the use of patent brokers of the buyer and seller. In some cases, such brokers require an up-front fee or retainer for services in connection with advertising the patent (in the case of patent sellers), identifying and contacting prospective buyers or sellers, and negotiating sales terms. In other cases, brokers require no up-front fees, and rely completely upon the proceeds of sale of the patent for their compensation. By using brokers to purchase or sell a patent, the engaging party can spend more time in its normal business operations, relying upon the expertise of the broker. Broker compensation is often 25-35% of the sales price of the patent.

    A significant number of patent brokers exist in the patent marketplace. However, many (if not the vast majority) of patent brokers specialize in the purchase and sale of patents in one or more areas of technology. This specialization is often based upon the anticipated value of patents in those areas of technology, as brokers normally recognize that higher commissions are a function of higher sales prices, which in turn can be generally attributed to certain areas of technology. Therefore, most brokers are highly selective of the engagements accepted from patent buyers and sellers, accepting only those engagements relating to relatively narrow areas of technology. Those that are not may have little to no knowledge of the industry or technology in which they are asked to buy or sell a patent. Although this does not always impact the purchase or sale of a patent, it can often be an impediment thereto.

  3. Website-Based Auctions By Patent Owners In some cases, patent owners leverage their own web presence to announce, advertise, and even sell their patents. Hewlett Packard is an example of such a patent owner, and has developed a patent sales website as a tool for offering and selling Hewlett Packard patents. Although such websites are attractive alternatives to expending higher patent holder resources or paying patent broker commissions as described above, these websites are only as effective as the potential buyer awareness and traffic they enjoy. Unless the patent owner’s website is a well-recognized destination location for purchase of desirable patents in a given industry or technology, posting patents for sale on the patent owner’s website is unlikely to generate revenue commensurate with the true value of the patent.

  4. In-Person Public or Private Auctions The limitations inherent in the manners of selling patents described above has spurred the interest in and growth of in-person patent auctions. These auctions have increased in popularity since about 2006, when Ocean Tomo LLC conducted the first large-scale in-person patent auction. These auctions can be open to the public, or can be closed to a set of potential purchasers selected by the patent owner. Generally following the procedures of auctions for other types of goods, live in-person patent auctions rely upon the competitive bidding process in a closed environment of potential purchasers to maximize the value of each patent sold.

    Although in-person patent auctions are excellent vehicles for bringing patent sellers and buyers together to conduct patent transactions, such auctions have their own significant limitations. These include the logistical difficulties for patent sellers and buyers to attend the auction, delays inherent in auction setup and execution, and the often complex procedures that must be followed by sellers and buyers for in-person live patent auctions. Also, the costs associated with the advertisement and preparation of live in-person patent auctions are often shared with the patent holder as up-front costs. These limitations are impediments to the efficient purchase and sale of patents in such auctions.

  5. On-Line Patent Auctions Most recently, the limitations of in-person public and private patent auctions have been addressed by yet another manner of buying and selling patents: on-line patent marketplaces. One such marketplace is operated by TerraCaptus LLC (www.terracaptus.com). Websites with similar structures exist worldwide, but do not appear to be fully functional, or have not attracted mainstream patent owners at the time of this article.

    In the auction model utilized by TerraCaptus, potential buyers of each patent listed for sale are identified by TerraCaptus using proprietary software and (optionally) recommendations from the patent owner. These potential buyers are contacted by TerraCaptus, and are invited to a scheduled auction hosted on TerraCaptus’ website. Each auction is public, utilizes an interface on TerraCaptus’ website for registered parties to bid, and is open for viewing by parties who are not registered to bid.

    Impediments to connecting patent buyers and sellers are significantly reduced by use of TerraCaptus’ web-based auction platform. In on-line patent auctions, the costs of setting up and conducting each auction are borne by TerraCaptus, and the other costs normally associated with in-person patent auctions (e.g., for travel, lodging, and other logistical issues) are eliminated. In this manner, TerraCaptus’ web-based auction platform has the ability to increase the number of potential bidders for any given patent.

    The TerraCaptus patent auction model also eliminates traditional up-front patent auction costs, such as costs associated with identification of and communication with potential buyers, advertisement of the patent for sale, preparation of the auction, and conducting of the auction. TerraCaptus charges nothing for these services, and instead is compensated from the proceeds of sale of the patent. Also, TerraCaptus is only compensated from auctions that result in a sold patent, and receives compensation only when the patent seller receives payment for the patent sold.

Significant advancements have been made to date in reducing barriers to the connection of patent buyers and sellers. However, these parties can expect continued innovations in the patent transaction marketplace as technologies and communication systems develop.

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