Joff Wild

Ocean Tomo has now officially confirmed the amount raised at its auction in San Francisco last week. The figure, including buyer’s premium, came in at $19,629,500. The number I gave you previously was totted up on the auction floor as the sale was happening and so excludes the buyer’s premium, so it does not take a genius to work out that OT made over $1 million from buyers on 2nd April. As the firm also gets a cut from successful sellers – which I understand is around 15% - that means it probably generated close to $4 million for itself from the auction. Now, if you can do that two or three times a year, you have a nice little business on your hands. And that’s before you factor in the sponsorship deals that are done around the auctions and the great branding for OT generally that they provide.

Of course, no-one should begrudge the firm the money it makes. It has taken big risks to launch the auction market and could easily have fallen flat on its face. That it has not, says a lot for the skill of the OT team led by Andy Ramer and Justin Basara, and their ability to attract high-quality lots, as well as the people with wallets big enough to do the bidding. And, of course, the whole process eventually becomes a self-fulfilling prophecy. If IP owners know that you have a good record for selling rights for a high price, they will be more likely to entrust their stuff to you for sale; while if buyers know that the lots at your auction will be strong, they will be more likely to turn up and to bid.

Some people say that auctions may not be an efficient way of getting your hands on IP rights. But what they do have over other forms of transaction is that you can see a market developing before your eyes. If you bid and someone goes higher, you have a decent idea that it is not only you who thinks the property in question has value and that, therefore, you are taking less of a gamble. You can’t get that kind of instantaneous feedback from a one-on-one negotiation.

In any case, what last week certainly did show is that, despite all the uncertainty in the US right now, there is clearly a growing market for high-quality IP. Organisations are willing to pay top dollar when they come across assets they want to get their hands on. And it’s not only at auctions that this is happening. Look at RIM, for example, which last week announced that it had invested over $300 million on buying-in intangible assets in the 4th quarter of its financial year. This amount includes €120 million ($188 million) spent on acquiring a European patent portfolio at the back end of 2007. Then there’s patent brokerage IPotential, which raised $104 million for clients in 29 transactions during 2007. And these are just two examples of IP monetisation that have come into my head immediately. Many reading this will know of quite a few more, I am sure.

So what’s going on? Well, here’s what Ron Laurie, managing director of Silicon Valley-based IP investment bank Inflexion Point makes of it all:

There are two opposing mega-forces in play. On the one hand, the constricting legal climate around patents (compliments of the US Supreme Court, Congress and USPTO) plus the general economic environment (liquidity/credit crunch, investor caution, etc) should have a depressing effect on patent valuation and sale prices. On the other hand, the momentum behind the expanding IP marketplace, from both corporate players and institutional investors, is more than offsetting the negative effects.

Bottom line is that the various IP business models and defensive strategies will adapt to the negative pressures but the market as a whole will continue to grow.

Everyone would agree, I think, that most patents are not worth a thing. But there are 5% to 10% that can be worth an awful lot – either to those that have developed the inventions they underpin or to those that acquire them – and that’s one of the main reasons why so many people embrace the patent system and believe it is of vital importance. Maybe it’s time for everyone to focus much more on that 10% (and how to identify it) and less on the other 90%.