Trading in patents: Italian institute seeks data -- can you help?

The IP Finance Institute is the unit of the Italian University Politecnico di Torino which focuses on the economics and financial aspects of intellectual property. As a non-profit organization, the IP Finance Institute promotes and develops know-how transfer, research initiatives and projects relating to IP as an economic asset and its use in IP-based financing solutions.

One of the Institute's current research projects seeks to shed light on the dynamics of patent transactions, on the rationale behind the use of marketplaces for IP rights and, in particular, on the reasons for selling patents by auction. Part of this project has been structured to discover how the issue is perceived by the involved companies.

To this end, the Institute has composed an online survey designed for representatives of companies which actively trade patents (in particular at auctions), in order to collect direct evidence. Participants can access the questionnaire -- which is in Engliah -- by clicking this link.

The survey is expected to take approximately 10 minutes. All of the submitted data will be treated anonymously and in aggregated form for academic research goals and will not be transferred to any third party. At the end of the project the results will be shared with all the participants and will be published.

Patent litigation as an alternative to patent auction

Insight into the use of patent auction houses comes from a patent infringement complaint recently filed against Nissan, Toyota, Honda and others by the Kansas-based National Institute for Strategic Technology Acquisition and Commercialization (NISTAC).

The complaint notes that "the patents at issue resulted from work of Ford Motor Company employees" and that subsequently "Ford assigned the patents at issue to NISTAC. In 2006, NISTAC placed the patents at issue along with additional patents in an Ocean Tomo auction. In preparation for that auction, NISTAC notified multiple automotive companies of the patents and their potential availability as part of the Ocean Tomo auction. The patents at issue were ultimately pulled from the auction and retained by NISTAC."

Google buys up Modu's Patents

Modu was a small Israeli telecommunications company which attempted an IPO on the Tel Aviv stock exchange (see report here) but collapsed a few days later when the IPO failed, apparently USD 130 million (according to the report here). The 2008 investment round placed a valuation of USD 150 million on the company.

Modu made tiny little handsets which were no bigger than a credit card. Not much use either without a keyboard, but they were designed to be fitted out with jackets to add the functionality. Well it appears that the lack of a keyboard was their downfall since the company went out of business.

And their biggest asset left? Well apparently the patent portfolio, as Google came in at the last minute to pick up around 100 patents for a price of USD 4.9 Million. Quite a price for a bunch of patents - but probably only the cost of one saved litigation if the patents ended up in the wrong hands. I've no idea how many litigations Google have pending related to their Android-based telephones. It's probably into the tens and it would not surprise me if the fees were beginning to have an impact on the bottom line of the company. Google has never been a particularly aggressive company in asserting its patent rights and so these IP rights will probably end up in a dusty box somewhere in a lawyer's office (or since it's Google out in the big wide cloud) until the opportunity comes to defend itself.

 

 

 

 

Technorati Tags: Telecommunications, Google, Modu, Patent Sale

Auctions and the Trademark Troll: A Coda

On 8 November ("Meet the Trademark Troll") here, we reported on the contemplated auction by Brands USA Holdings of various trademarks and corporate names that are no longer in use. Exactly one month later, the auction went ahead as scheduled at the Waldorf-Astoria hotel in New York. As reported by Stuart Elliott of the New York Times ("From Retired Brands, Dollars and Memories" here), 170 properties were put up for sale in front of a room of 50 people (additional bidders participated online).

The result: over a one-hour period, approximately 12 bidders purchased around two dozen marks and names. Viewed otherwise, the total take was $132,000, whereby the highest bid went for the Shearson mark (a financial company), followed by $32,500 for Meister Brau (not surprisingly a beer) and $30,000 for Handi-Wrap plastic wrap (I was surprised that this mark is no longer in use; I remember as a child the daily challenge of separating the plastic wrap from the sandwich that was trapped inside.) At the low end, marks such as General Cinema and Allied Signal were each sold for approximately $1,000 each. I do not know the details of the expense side of this auction, but one can assume that advertising, rental of the room, the cut owned to the auctioneer entity (Racebook Marketing Concepts), and the cost of filing and maintaining the various intent-to-use U.S. applications must certainly have eaten a healthy percentage of the take from the auction.

The motivations for the purchase of these marks were for the most part opaque. For example, when asked by the purchaser of the Collier's mark (a respected magazine that once published the likes of J.D. Salinger, but ceased operations in the 1950s) what he planned to do with it replied: "You'll have to ask my father [who] owns a publishing firm in Philadelphia".

On the face of it, there may be concrete plans in store for the purchasers of the
Meister Brau mark, namely, as reported by Matt Creamer in Advertising Age ("Meister Brau, Handi-Wrap, Braniff ...Going, Going, Gone"). There, the thinking seems to have been that the acquirer of the brand would "sign an manufacturing agreement with a contract brewer, put together an advertising plan, and then market it to younger (legal) drinkers." At least there is some semblance of precedent here, namely Pabst Blue Ribbon beer, a blue-collar brew of the past, which seems to have made a modest return from the grave based on nostalgia, effective advertising maintained on a shoe string, and a low price.

It seems to me that, despite the media hype, this planned auction of defunct brands, no matter what the presumed nostalgia value, was a dud. We more or less anticipated this result in our earlier blog. What troubles me more is the question of whether the media, including the blogosphere, was guilty of being part of the over-hyping what turned out to be a non-event, at least from the commercial vantage-point (the legal questions about what rights exactly are being sold under such circumstances remain interesting at the conceptual level).

Part of me says "yes", we were victims (yes "victims") as well as aiders and abetters of this hype. On the other hand, in a world where the identification of trends (and micro-trends) has become a widespread phenomenon, it is difficult to dismiss out of hand such a promotional initiative. Confronted with hesitatingly embracing the next big idea (especially when it resonates with existing cognates--here, the auction of patents and reference to an IP troll) and summarily rejecting it, there is certainly a strong tendency to adopt the former. After all, each of us wants to be seen as riding the crest of that next big wave, as opposed to being a stodgy, unimaginative naysayer. Perhaps this is the most important cautionary point that can be taken away from the auction.

Has the Great Patent Fire-Sale Begun: Another View

Further to the January 14 comments of blogmeister Jeremy Phillips on the Bloomberg item "Cash-Strapped Technology Small-Caps Hold Patent Deals (update 3)," I have several additional thoughts. Jeremy focused on two points that were raised in his report: (i) Such a sale can raise cash and allow the erstwhile patent owner/assignor to earn cash while taking a license back to use the inventions; (ii) however, the need to raise cash by selling patents could lead to a fire-sale of valuable assets in the context of a depressed overall world economy. Jeremy suggested that one way to avoid the latter (at least from the point of view of the seller) would be to have a more multi-actor bidding market resulting in an ultimately higher purchase price.

I take all of Jeremy's points, but I remain unconvinced that the onset of the current economic crisis somehow constitutes a watershed, the result of which will be a significant uptick in the sale of patent portfolios by cash-strapped companies. Patents have and will be sold by their owners to third parties for a variety of reasons. This was true when times boomed, and it will apply as well when times are bad. The motivations for such sales may change, depending upon the underlying economic circumstances, but we lack good data to indicate what these systemic differences might be. To speak about a change in trends seems to me to be overstated.

One way to deal with a fire sale

As for the observation in the article attributed to a managing director of Ocean Tomo (a Chicago-based company that auctions off IP portfolios), to the effect that an assignment and license back arrangement can raise cash without diluting investors, while at the same time allowing the assignor to continue to use the technology ("to have their cake and eat it too"), several comments are in order.

First, assignment and license back arrangements (both for individual patents as well as have multiple patent holdings) have been around for a long time. I remain unconvinced that there is something in the current economic crisis that has increased their popularity or desirability. Second, not every sale or auction of a patent portfolio is intended to result in a license back arrangement. That does not make the sale less valuable to the seller, nor less attractive to the purchaser, whether or not the world is in an economic downturn. My hunch is that the assignment/ license-back situation is the exception and not the norm, but I would be delighted to learn to the contrary.

This is not to say that the economic downturn does not lead to a fire sales of assets. It does so , as my own practice can attest. This is especially so for companies where the technology model is to develop and exit, and a lack of resources forces the exit at a stage earlier than originally planned. But whether or not the exit is sooner or later, the sale of the patents is part of the overall sale of the company. That, however, is quite different from saying that we are now witnessing a significant increase in the number of fire-sale situations for patent portfolios of cash-strapped small-cap companies. This is so, I suggest, unless the starting point for such sales is so low that any increase becomes significant as an artifact of the data, or the underlying company is an empty shell except for the patent holdings, which case the asset sale becomes the sale of the company's patent portfolio.

I am sure that the the current recession will lead to some significant changes in the use and commercialization of patents. But I remain unconvinced that a significant increase in the sale of patent portfolios will be one of them.