Patents @ KBLLP
Can I sell my patent?
Inventors are often not aware that they can sell their patents. As an initial matter, patents can be sold. A patent is a piece of property that can be sold like land or a house. While the terms of patent sales vary greatly, the fundamental concept does not change. The patent seller and the patent buyer will negotiate the price and conditions, and close the transaction similarly to what happens during a real estate purchase—although frequently with less paperwork. Patent sales happen frequently and in fact many different patent sales can take place on any given day. The field is very active with numerous buyers and sellers and inventors have been selling patents for decades. In addition, patent owners are sometimes interested selling patent rights as opposed to selling the patents themselves.
Who sells patents and why?
If you’ve wondered about selling a patent then you’re not alone. Patent sellers are a diverse group, ranging from individual inventors to giant operating companies and everyone in between.
Inventors sell their patents for a number of reasons. Some inventions are simply too costly to implement for an individual or even a few individuals. For example, a physicist may invent a new type of nuclear reactor and obtain a patent, but most likely will not be able to implement the invention without access to significant funds. In another example, an inventor may not have the time or interest to develop a commercial product, and would rather spend time on other inventions or activities. Yet another example would have an inventor that did try to commercialize a product only to be pushed out of the marketplace by large incumbents who tolerate no competition. In these scenarios, selling your patents is a good opportunity to give your invention new life and to collect a monetary reward.
Companies large and small also sell their patents for various reasons. Perhaps the most frequent reason for patent sales by companies is to generate cash flow. A company’s R&D department may have moved on to its newest research project, but patents from older projects remain in the company and have value. That company happily sells some of its issued patents to generate additional income while its R&D department works on new inventions. Sometimes companies find themselves in a market position where enforcing patents is counterproductive and not feasible. For example, a company may find itself in a situation where the only infringers of its patents are also customers of the company’s products. In that situation, patent enforcement is not well received and that company would rather monetize its patents by selling a patent to a company as opposing to enforcing the patents itself.
Who buys patents?
There are different types of companies that buy patents. Operating companies, licensing companies, R&D institutions, and patent aggregators are all examples of companies buying patents in private or public transactions.
Operating companies usually buy patents either as a defensive measure in response to a threat or as a strategic move to beef up their patent portfolio. When an operating company is threatened by a patent lawsuit from another operating company, it will review its own patent portfolio and try to find a patent that it can assert against the other company. Finding its portfolio lacking, the operating company will look for patents in the marketplace that would give it a shield—or a sword—against the other company. Outside of litigation, operating companies also build up their patent portfolios for strategic reasons. Often, companies that are growing and start-ups that are about to go public realize that their patent portfolio is insufficient, and they will purchase patents in order to build up their overall portfolio for the future. In all of these situations, operating companies sparingly buy patents just because they are available. If an operating company chooses to buy patents, it usually has a good strategic reason.
Licensing companies are another example of companies that buy patents. Licensing companies are special purpose vehicles designed to do one thing—monetize patents—and they do it well. Patent enforcement and monetization is a highly specialized field that requires an excellent knowledge of technology, patent law, and civil procedure to get the best results. Specialists in this field have acquired decades of experience and that experience shows in the results of patent licensing companies. Licensing companies often have no choice but to engage in litigation because a patent is only as good as its weight in court or in the marketplace.
While R&D institutions are mostly known for generating patents, on occasion they purchase patents that complement their research efforts. Sometimes this is part of a larger licensing play and sometimes this is simply a way to build up protective value over their research efforts.
Patent aggregators are highly specialized entities that sometimes purchase patents in order to reduce risk for their members.
How much do buyers pay for patents?
The answer to this question depends greatly. It is important to understand that while inventing new technology and obtaining a patent is a critical first step, additional work is required to unlock the value of that patent. Someone with a background in patent monetization must examine the patent, understand its scope, investigate applicable industries, and estimate the extent of infringement, if any. And that is before an estimate of value can be placed on the patent. Once the initial investigation is complete, the prospective buyer is now in a position to discuss pricing with the owner. However, the future owner still has to monetize the patent—by licensing, litigation, or product development—all of which require funding.
A number of other factors also influence the price parties pay for patents. For example, a single patent will likely command a lower price than a larger patent portfolio. Patents that will be in force for many years are usually worth more than patents that are about to expire. Patents that cover a dying technology are typically worth less than patents covering products in a growing industry. Of course, exceptions to these rules exist—a single battle tested patent can be worth more than a portfolio of many patents. And an expiring patent in an industry with tremendous revenue may be worth more than a longer term patent that covers a small market.
Taken together, all of the above factors lead to widely divergent pricing for patents. There are generally three different arrangements: a back-end deal, a hybrid deal, or an all-cash deal. In a pure back-end deal, the buyer agrees to pay a certain percentage of incoming licensing revenue to the patent seller. This way, the inventor can reap the benefits of their patents while letting professionals do the licensing work. In the pure back-end deal, the buyer is also able to spend resources on properly monetizing the patents as opposed to spending money on buying the patents themselves. In a hybrid deal, the buyer pays a cash amount up-front, such as $10-100K (depending on the patent portfolio), and agrees to pay the inventor a percentage of the licensing revenue (with the percentage depending on the patents and circumstances). All-cash deals are self-explanatory, with the buyer owing no back-end to the inventors. All cash deals can range from $50K to several $Million, again, depending on the circumstances.
Steps to selling your patents
Once you’ve decided to sell patents to a company, or an investor, it is logical to wonder about next steps in the process. Learning how to sell a patent is part of your education as a patent seller because listings of patents for sale by owners are rare—most of patent transactions take place privately. As noted above, a significant amount of investigation takes place before a buyer can make an offer for a patent portfolio. While the investigation is an intensive process, we are here to help. We frequently help clients evaluate patent portfolios, with no charge for the patent sellers. During our initial conversations, we will ask you for all of the non-confidential information that you can provide. Sometimes it makes sense to enter into a non-disclosure agreements (NDA) so that we can discuss confidential information. Once we are in a position to evaluate your patents, we will begin our investigation with the goal of finding a buyer for your portfolio.