Patent business: The nuances of self-brokering IP

It is true that patentees can divest patents without intermediaries. This is like selling a house without the assistance of a broker. The market will take advantage of the situation and real mistakes, that have legal consequences, can be made.

Establishing the asset value

Determining patent value without external assistance may cause a seller to over-value the assets, and the seller may reject quite legitimate early offers. Once rejected, early offers will be reduced later as buyers discount the unsold assets that were reviewed by others and remain unsold.

Valuations that are too high arise by valuing patented inventions without looking at the aspects of those inventions that are claimed. Since claims form the basis of the exclusionary right in a patent, they must be used to assess the scale of the market that can be licensed (as a result of infringement) within the remaining life of the patents.

Supporting patents with evidence of infringement—known as ‘evidence of use’ (EoU)—is crucial, and placing patents on the market without it guarantees failure. The global patent market sees roughly 90 brokered offerings per month—enough that buyers reject those without EoU. The decision to self-broker means the seller must be able to construct EoU that will be acceptable to the market.

Building rivalry for the assets

Managing an offering by approaching buyers serially almost guarantees it will not come to a conclusion. The lone buyer feels no time pressure to respond and uses time as a weapon against the seller, whose management has expectations about when the transaction will conclude. The buyer drags the dialogue down the timeline so that the seller’s frustrated management becomes willing to make concessions.

Getting non-disclosure agreements (NDAs) in place one at a time with buyers that are approached serially can waste inordinate amounts of time—which is to the buyer’s advantage. This happens with self-brokered offerings because the seller does not have NDAs with buyers in advance of the offering; intermediaries almost always do.

"Sellers need to have technical specialists ready to answer diligence questions in real time to keep the process moving."

The goal is for all buyers to conclude diligence efforts at the same time, so they are prepared to bid. Therefore the offering has to be complete when transmitted to buyers, with infringement analyses, EoU documentation, patent analytics, etc, in place so that the buyers’ questions don’t stop them from doing diligence while waiting for the seller’s answer, and allow them to demand deadlines be extended because of delays.

Sellers need to have technical specialists ready to answer diligence questions in real time to keep the process moving. Self-brokering sellers rarely have completed an offering to this level and their efforts are compromised accordingly.

Procedural risks

To approach a potential operating company buyer directly, care must be taken not to have the buyer think the approach is a patent assertion. If they do, the seller risks having the potential buyer launch a declaratory judgment suit, which the seller may not be prepared for. In such a suit a buyer asks the court to declare that it does not infringe the patents offered; if it succeeds the value of the patents may be impaired dramatically. This does not happen with an intermediary, which is able to claim substantively that the patents are solely for sale through their hands.

Sending patent numbers to an operating company buyer may seem innocent. However, buyers are very disturbed by the practice because this puts them on notice regarding the patents. Should the patents be sold to a licensing entity, a future assertion could claim that the buyer had notice of the patents and that any infringement of them since the date of notice was wilful. Damages for wilful infringement are tripled. Intermediaries have ‘anti-notice’ provisions in their NDAs to prevent such issues.

Sending out EoU documents without NDAs can place the self-brokering seller in a position where these documents ‘drift’ to unknown parties that may be the subject of the EoU. And they may take court action to declare they are not infringing, since the seller was willing to let the documentation float in the market as a tacit accusation.

Patentees have every right to sell their own patent assets. Great care must be taken if this is done to prevent tripping over items that can diminish the value of the assets or make the seller liable.

Art Monk is vice president, patent brokerage at  TechInsights. He has a career spanning 35 years in high-technology business and managing patent divestment and acquisition transactions internationally. He can be contacted at: amonk@techinsights.com