Auctioning IP – use as a licensing forum?

More than a year down the track, everyone concerned with IP must have heard of Ocean Tomo‘s IP Auctions.

My good friend, Jeremy Philips of IPKat fame, who is (amongst many other things) editor of Oxford‘s Journal of IP Law and Practice (JIPLP), recently wrote a punchy and thoughtful piece in JIPLP on IP Auctions entitled ‘A bid for recognition‘.
Jeremy makes some interesting points, such as (using my words):

  1. the most appealing IP assets will not need an auction;
  2. IP auctions can not be compared to fine art auctions (fine art is unique, appreciates in value, does not expire); and
  3. the most valuable IP assets (trade marks associated with brands) are usually sold along with the business supporting them – and so would more likely be the subject of a take-over bid than an auction bid.

Jeremy suggests that one result of all of this may be that IP auctions end up as low-end commoditised affairs done online (again, my words). This has been tried and failed in the past (pl-x.com), though admittedly in the hands of different management.

Picking up the above points in turn:

  1. I think Jeremy is spot on about the types of assets that will end up at auction – in general.
    However, I can envisage situations in which one might wish to force an auction between bidders for a particular IP right, which is indeed of high value. The key factors for this scenario would obviously have to be (a) a strong validity position, and (b) a guranteed minimum number of bidders. Why hold the auction in public, though? Again, as part of an overall IP strategy, this may be very valuable – for example in the context of future rights to be licensed, sold, enforced, or to generate a higher valuation for an entity, etc.
  2. Jeremy’s comparison with fine art is really interesting.
    Jeremy says that in contrast to IP, fine art is unique. I mostly agree. Although a valid IP right is theoretically ‘unique’ it almost never covers the only way to acheive a particular result (whether it be a patent, trade mark, copyright, Design, or whatever) – technology will always find a way around an IP monopoly.
    As Jeremy says, apart from trade marks, most IP rights do have a limited life. (Having said that, even fine art will deteriorate beyond recognition at some point..) Also, confidential information doesn’t really have a set expiry, though the idea of auctioning it brings about some interesting problems… However, I think many IP rights do appreciate in value. One of the most practical ways to value an IP right is by the sales of the product associated with it – which always go up over time. The patents covering Lipitor are worth a lot more to Pfizer right now ($20 Billion per annum?), than they did when they were first filed, and the same applies to the Coca Cola trade marks, etc.
  3. The most valuable IP assets are usually trade marks in association with a high-value, well managed brand (and all that supports it). I agree with Jeremy that it is hard to see high value brands going by way of auction.

A further thought would be to use an auction forum to grant a certain number of licenses, carved up according to field, geography, time, or whatever. Such a system could well favour higher value IP, as it gives the bidders the chance at a slice of something that is clearly valuable and which retains exclusivity.

What do you think?

22 Comments on “Auctioning IP – use as a licensing forum?

  1. An additional argument is that an IP right is never sufficient to produce the
    product or service it is attached to.  You also need distribution
    channels, manufacturing capacity, a relevant brand, etc.Consequently,
    the number of people who will find a given piece of IP valuable are likely to be
    a) few, and b) readily identifiable.

    Why
    would they participate in a public auction?

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  2. HI Peter – Thanks for the great comments.Do you think that the public forum for the auction would create greater pressure for the bidders?  (Clearly a competitive bidding situation can be generated without the public element.)Also – what about purchasers who only want to acquire and then out-license an IP right?  (Or, assert and then license it – some might call such an entity, a ‘troll’, though I wouldn’t.)

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  3. On reflection, perhaps the most exciting prospect for IP auctions comes at the point where an innovation is the subject of a patent application and the applicant lacks the resources to develop it himself.
    At present, a person can offer his invention to prospective purchaser but may find himself disadvantaged by the (not entirely unreasonable) insistence of the prospective purchaser on having a period of exclusivity in which to evaluate it. For obvious reasons this severely limits the number of prospective offerees. Putting an application up for auction could be a neat way of avoiding this problem.

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  4. Thanks JeremyDo you have any thoughts on using a public auction forum to bid on licenses?

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  5. Current auctions suffer from adverse selection.  Since the IP has to be sold, not just licensed, it prevents large companies from licensing something that they have any inkling they might use in the future. 
    Furthermore, to second Peter’s comments, an IP right is just the start.  The implementation is the hardest part.  That’s why I prefer to focus on IP assets that are further across the implementation chasm.

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  6. Duncan,they say art is in the eye of the beholder and i guess the main difference between fine art and iprs isn’t lifetime of the object but the the strong will to own, to put it up a wall – or to tell everybody that it’s yours. Nobody cares if you own any unused (or “unwired”) patent or trademark. Speaking of ip many people just think of patents and trademarks. But there’s a lot more e.g. copyrights. Screenplays for example may be worth much more than patents – and of cause sold at an ip auction or used for financial transactions e.g ip-backed leasing. Thinking of ip auctions, I guess the best things to sell  are (potentially) infringed patents or other iprs.  Other ways there’s not really  a need in bidding, because as you mentioned high class ip at auctions is rare.DirkPS: At http://www.ip-auction.eu/ they also thought of auctioning licenses, but – as far as I know – it didn’t work out.

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  7. Dirk – welcome and thanks for your interesting comments.Another area where one can at least approximate an objective valuation and transfer of rights – IP securitisation – has certainly reinforces your point that screenplays can be worth much more than patents.  I know of at least four $1 Billion film receivables securitisations.  Correct me if I’m wrong, the best patent-backed securitisation that I’m aware of was BMS’ ‘Zerit’ ($ 57 Million).As an aside, Greg Aharonian has argued for years that films are patentable – what do you think?Your point about the best IP for auctions being infringed IP is a really interesting one.  I guess the other points you are making is that this IP would also ideally be valid and the current owner unable or unwilling to assert it.  It’s interesting to think about why the current owner would prefer an auction over contingency litigation (which will take more time, but have a much greater reward).

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  8. Duncan,here’s another example for a nice ip deal: http://en.wikipedia.org/wiki/Bowie_BondsThere are already a lot of deals out there but only few get really noticed by public. Still just a few people talk about the impact of ip enabling companies to increase their shareholder value. I disagree with Greg: Why “patented” a movie and have a right for 20 years when you can get a  copyright lasting for many more years? Were’s the point?Benefits in auctioning (potentially) infringed patents are e.g. reducing risks in trials. Surely you’ll have a much greater reward in fighting for your own rights – but what if you loose? And if the infringement isn’t just potential I bet there are more than a few bidders willing to pay  a lot of cash. (Also see: http://www.law.com/jsp/article.jsp?id=1183021572654 )Dirk

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  9. Thanks Dirk and thanks for the links.Here’s a recent post I did on the landmark Sear’s securitisation as well – a new era for IP securities?  There’s been quite a few now, though this one was different.Obtaining a patent doesn’t remove copyright protection – often the best IP strategies involve multiple, overlapping rights which each have their advantages.Copyright does last longer.  But to enforce it you need to prove copying.  Infringement of a patent occurs irrespective of whether the infringer even knew about the patentee, their products, or even the patent.I agree that litigating your own patents rather than auctioning them for someone else to do it is more profitable – if you win.  If you lose, then in some jurisdictions, there’s little downside, especially in the US if you use a contingency firm (you don’t even have to pay your own lawyers, well possibly something, but only a fraction of paying for the case yourself).I wonder if this means that ‘infringed’ IP rights which end up at auctions are self-selected to be sold by entities which can’t afford to enforce them.  (Afford may mean in money or time – anyone who has been involved in IP litigation knows that there is an enormous cost in management time.)

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  10. Duncan,Nice (other) article. Deals are getting bigger. Sure, to enforce copyright you need to prove copying. But to enforce a patent you also need to prove infringement as well. So where’s the deal? Beside the question of risk and money loosing a patent trial, there are other good reasons to sell infringed patents: The firm infringing your iprs might not always be  a competitor. It might be your best customer or  supplier. You wouldn’t force him to pay royalties – but someone else might do so. Dirk

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  11. Thanks Dirk.To prove copying – you have to prove something completely out of your knowledge – the actions of the other party.  This can be very difficult.  It often means proving by circumstantial evidence – ie the two items are so similar that they could only have copied.To prove patent infringement, it is much more objective (though not completely so) – whether the alleged infringing thing falls within the scope of the words of the claim – as read by the skilled addressee of the patent.  This is often much easier.I’m not sure whether a customer would be any happier when they find out that you previously owned the IP right which is now being asserted against them.  (They will easily find this out and will readily put 2 and 2 together.)Having said that, if it really is an infringement, and the customer has been put on notice, then unless there is some other really good reason, you should probably enforce the IP right in any event.  (A really good reason might include for example very low level, well explained infringement by your best customer by far.  The relationship may allow some other commercial benefit to you in return so that youc an cover it in a license anyway.)I guess another reason to sell an infringed IP right is that, in the right hands, it is more likley to be valuable.  The infringement is objective proof that at least someone else thinks it is commercially worthwhile…

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  12. Duncan,it’s not that black and white. Sometimes it’s easier to prove copyright than patent infringement – sometimes it’s not. It depends on the case I guess. Surely customers won’t be happy to find out you sold iprs they’ve infringed. You shouldn’t inform them after the auction. You should inform them before – otherwise you’re loosing a probably good bidder. This way he can decide whether he beginns to pay royalties to yo you, whether he’s going to buy the iprs, whether he stops the infrigement or whether he wants to end in court.I agree with you the relationship may allow some other commercial benefit in return to cover it.But to close our little discussion: I think ip-auctions are a good thing – when you’re selling things other people strongly demand.Dirk

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  13. Andrew – for some reason your comment was stuck in the system, I suspect it was because you may have not realised that you needed to click the ‘confirm’ button after submitting.Great comments – thank you.  I agree with the licensing point.A problem is that the more a company takes the IP across the innovation chasm, the less likely they are to want to part with it.

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  14. Duncan, I think that depends on the type of intellectual property.  For example, we work with software technologies that companies have developed to solve their own business problems.  This is developed and deployed inside the company and is very far across the chasm.  They are usually willing to license it for the revenue upside.

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  15. Andrew – thanks.  You are right.I should have made it clearer that I was agreeing with you and referring to problems with a full assignment of rights (“part with it”).ie – The further a company takes IP across the implementation chasm, the less likely they are to want to assign their rights, rather than license them.So I think we’re in heated agreement.Please keep the comments coming.

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  16. Here’s another one – in Taiwan:”The 2008 ITRI-TIPA (http://patentauction.itri.org.tw/tipa) gives Taiwan high-tech companies the opportunity to obtain patents from sellers worldwide. … The 2008 ITRI Taiwan International Patent Auction call for patents commences January 25th. Because of growing demand, there will be 2 patent auctions held during the year, one in June and another in October. The deadline to submit patents for the 1st patent auction is March 31st, and the 2008 auction deadline is in mid-July.”Good luck.Dirk

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  17. Thanks for this kind of information which is providing in this blog related to IP auctions. Recently I read about this topic that  Ocean Tomo has transacted more than
    US$ 70 million at IP auctions across Europe and the US. And highest selling price for a single patent at a multi-lot live IP auction at US$
    4,895,550. This is a highest deal ever in IP auctions.Stuartdenley<a href=”http://foreclosures.gov-auctions.org
    “>Foreclosure Auctions</a>

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  18. This article provides a lot of valuable information regarding IP.The article is very useful.I like this article very much.============================================Arnold[url=http://www.gov-auctions.org]AutoAuctions[/url]

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