Joff Wild

The total amount raised at the Ocean Tomo auction in San Francisco on Friday was $2.75 million, excluding any buyers' or sellers' premiums. I got this figure from Ron Laurie, who is chairman of the Inflexion Point Group. As Ron is not connected to Ocean Tomo this is an unofficial figure, but knowing Ron as I do I am very confident that it is accurate. It is the lowest amount that any public OT auction has ever raised. This is Ron's take on why it turned out that way:

• The economy. Cash is tight and strategic (operating company) buyers are no longer “investing” in improving their patent position for the long term through acquisition of third party patents. Their focus now is almost entirely on reducing short-term economic pain either by generating top-line revenue (via licensing/assertion programs) or by reducing IP-related costs to improve bottom line performance (via acquiring patents in order to avoid or settle litigation by competitors and NPEs). In addition, many corporate patent filing and prosecution budgets have been slashed to the bone.

• Both strategic and financial buyers have become much more sophisticated in terms of emphasizing quality over quantity, with the following effects on the market:

1. the upper end of the market in terms of quality (strong validity plus substantial current infringement) has maintained or, in some cases, increased in perceived value;

2. the bottom end of the market, in terms of quality and thus expected value, has disappeared almost entirely and this is precisely where OT has staked out their dominant position; and

3. the mid-market between (a) and (b) is still active but at lower volumes and at heavily discounted prices (50% or more).

• The largest financial buyer, which has been very active in prior OT auctions, did not participate at least in terms of lower value patents.

• The recent loss of a substantial portion of the auction team.

With regard to the second to last bullet point, I got the following from another attendee at the event who identified the "largest financial buyer" as Intellectual Ventures. This is what he had to say:

It was obvious that Intellectual Ventures was no longer bidding, at least on most lots. The last auction I attended was in Fall 2007. After that auction, I did an analysis of the sale prices versus their expected values and determined that in nearly every case, there was a single bidder who had made the same bid before auction. That bidder was mostly absent yesterday.

These are highly choreographed events. There are too few buyers and they all know each other and talk. The defensive buyers are not going to waste money bidding against each other. That won't change until IP owners have another viable alternative to monetisation without litigation. The auction is not the right place for exchanging most IP, but at the low end it may still have a place so long as sellers are realistic in their expectations. Based on the expected values and reserve prices I saw, most were not even close.

So does this mean the end of Ocean Tomo auctions? Well, maybe in their present form. I understand that the next one to be held will be in Chicago in July. It will be online, which will significantly cut down on costs. It also makes sense because in my experience so many of the successful bids in an auction come from the telephone lines. Clearly people do not need to be physically present to take part. A live event is also planned for Paris in November. That one may have to be looked at again. This is especially so as lots which do not have a US element to them are going to be even harder to sell. The potential upside and downside in terms of litigation exposure is not there if a US patent is not involved somewhere. And if all your lots do have a US element to them, why take the event away from home and hike costs significantly when most bids are gong to be from American organisations?

In all of this what we should not lose sight of is just how successful Ocean Tomo has been with its auctions since 2006. The most recent one may not have worked out, and auctions in their present form may have had their day, but OT had the courage to get in there and do a job when others were just talking a good game. And it made some very good money as a consequence. Therefore, it is pretty clear to me that the firm has the capability to absorb this setback, dust itself down and keep itself on the cutting edge of what is happening in the IP transactions market. One thing is for sure, no-one knows that market better than CEO James Malackowski.

In his analysis of the San Francisco auction, Broken Symmetry's Michael Martin makes a similar point:

Some people might think this spells doom for Ocean Tomo. Those people are sorely mistaken for the simple reason that the packaging and marketing of IP requires highly specialized training, along with access to a specialized network of professional buyers and sellers. Regardless of whether Ocean Tomo continues its auctions with the same frequency with which they have been held over the past few years, there is no doubt that it has accumulated an amazing group of professionals and perhaps the best social network of accountants, lawyers, brokers, buyers, and sellers that is available to non-repeat players in this market. This is only a guess, but an educated one: the IP market is evolving and Ocean Tomo is about to evolve with it.

As is always the case with these reports, I should remind you that Ocean Tomo is IAM's Official Patent Ratings Partner.