By Adam Jones
How many of you have ever cleaned out your garage, dusted the cobwebs off of old ski boots, exercise equipment and children’s toys that have been outgrown or forgotten, and put all the stuff that you don’t use anymore in front of your house for a weekend garage sale? Or maybe, when you could really use some extra cash, you decided that you were finally willing to part with your commemorative Star Trek shot glass collection and listed it for sale on ebay, hoping it would trigger a ferocious bidding war between a few obsessed Trekkies around the world. Auctions, whether held online or in your front yard, have long been a great way for buyers and sellers to come together and exchange goods for mutual benefit. If auctions are a great way to sell your old junk, can they work for the sale of less tangible assets like intellectual property?
Recently, a merchant banking firm specializing in intellectual property assets announced plans to hold live patent auction events twice per year. The firm, Ocean Tomo, LLC, will hold its first regularly scheduled auction April 5-6, 2006 in Silicon Valley. A variety of patents will be available for bidders to fight over, some valued at millions of dollars. Auctions are a relatively new way in which to undertake an intellectual property transaction, and Ocean Tomo believes that it is well positioned to be the leader in a new era in which intellectual property is bought, sold and traded just like other more tangible assets.
As an example that intellectual property auctions are feasible, one needs not look further than the live auction held by Ocean Tomo in December 2004 at the Northern District of California bankruptcy court. Seven patents owned by Commerce One, a bankrupt software company in Santa Clara, were up for sale as the company was liquidating its assets. Commerce One owned patents covering “web services,” patented during the last decade to facilitate communication in the online market. The patents had been widely used for years, with permission from Commerce One, by a host of software companies, including heavyweights such as IBM, Google, Oracle and Microsoft. Needless to say, the prospect of these patents falling into the hands of a company or individual who may seek to extract enormous licensing fees or royalties from the many companies using the technology caused considerable concern in Silicon Valley. A conglomerate of large, rival technology companies even considered joining forces to outbid anybody interested in purchasing the patents. When the auction commenced, tension ran high as attorneys, IP prospectors, and representatives from hopeful technology companies quickly bid the price of the patents up into the millions of dollars. The patent portfolio eventually sold for $15.5 million to JGR Acquisition, Inc., an acquisition company of Novell, Inc. Fortunately for companies using the patented “web services,” Novell plans to only use the patent portfolio to protect its own open source software.
Does the Commerce One patent auction prove that auctions can become a viable means for facilitating intellectual property transactions? The reason the Commerce One auction was successful was because a patent portfolio that could potentially harm many companies with very deep pockets was up for grabs. It has yet to be seen if auctions selling more “ordinary” patents will succeed. However, there may be hidden gems out there worth looking into. After the dot-com bust, many technology companies holding potentially valuable intellectual property went bankrupt. While some patents have been sold to pay off creditors and salvage any value left in the failed companies, others are now sitting unused and forgotten. These patents have been likened to “Rembrandts in the attic,” waiting for their true value to be realized. Some of the patents will no doubt prove to be worthless, but some could prove to contain substantial value. The difficulty lies in identifying the value of these patents, and then locating a willing buyer. Although there is no recognized standard of apprising the true value of a patent, Ocean Tomo prides itself on its Patent-Ratings system developed by its affiliate, Patent-Ratings, LLC, which uses a computer model to analyze various characteristics of a patent, such as the number of claims and the number of times other patents make reference to the patent. Ocean Tomo distributes the ratings prior to its auctions in order to assist potential bidders in their evaluation of each patent’s value. As for locating willing buyers, Ocean Tomo hopes that the success and publicity generated from the Commerce One patent auction will spur people to attend their twice yearly live patent auctions and check out their online auction service. If nothing else, the live auctions provide a venue to bring a large number of patent buyers and sellers together to meet, network and discover which patents are out there and available to purchase.
What about online intellectual property auctions? Ebay has demonstrated that it is possible to sell almost anything via online auctions, from garden gnomes, to cars, and even entire towns. Can intellectual property transactions also succeed online? There are a few online auction sites specializing in the sale of intellectual property that have popped up in the past few years, such as ipauctions.com, ip-trader.com and freepatentauction.com. Even ebay hasn’t been left out of the mix with 41 patents listed for sale according to my recent search. By the way, if you’re searching for “patent” on ebay, make sure you search within the Business and Industrial Section, otherwise you end up sifting through thousands of patent leather products and get sidetracked. If your paypal account is large enough, you can bid on a patent for a gun trigger fingerprint recognition device ($7,000,000), a patented device to extend battery life ($4,444,444.40), or a patented marine gimbaled radar mount ($1,250,000). If you have a more modest paypal account balance consider looking into acquiring the patent rights to biodegradable synthetic lubricant ($75,000) or a squid-shaped fishing lure ($200,000).
Time will tell how the intellectual property market responds to transactions via live and online auctions. Ocean Tomo may well end up as the Sotheby’s of intellectual property, specializing in selling high-end patents in a live auction environment. Online auctions will likely struggle to obtain legitimacy because the risks inherent in purchasing anything at an online auction are amplified when dealing with intangible property as complex as patents. However, if you’re not deterred by a little risk, then by all means, be a creative shopper this holiday season and bid online for the rights to a patent. After all, nothing makes a better stocking stuffer than the patent for a biodegradable synthetic lubricant.