How to Select a Patent Buyer
Patent sellers are frequently faced with a unique task of finding a suitable patent buyer” or selecting a suitable patent buyer from among several candidates. In this post, we explain the process and considerations for selecting the best buyer to sell your patent portfolio.
Uniqueness of Intellectual Property
One important thing to realize is that intellectual property in general and patents in particular are not a commodity where only supply and demand dictates the price. Each patent is different, and each patent portfolio is different. Various considerations dictate the value of the portfolio and how much a willing buyer might pay for it. A patent brokerage firm may be a useful intermediary that connects patent buyers and owners to accomplish a mutually satisfactory patent purchase. For patent sellers who are trying to sell patents for the first time, retaining the services of a patent brokerage is even more critical because a patent broker can help the seller navigate the first patent transaction.
Types of Patent Buyers
Individuals or companies can buy patents for different reasons. First, companies who intend or are already producing products covered by the patent frequently conduct a freedom to operate analysis where they find and analyze the patents that cover features of the features of the products. Further analysis is done to identify key patents that are likely valid and infringed. Sometimes these companies approach the patent owners with a patent purchase offers. Sometimes, they operate through intermediaries so that the patent owner does not know the identity of the ultimate buyer. Second, companies, or so-called invention buyers, look for the newly issued patents to develop a new product. Patent owners may enter into joint ventures with these companies, a topic which is beyond the scope of this article.
Another type of company that buys patents, through a patent broker or directly, for monetization. A patent may be infringed by one or more companies, but the patent owner may not be aware of infringement, establishing which may be an expensive and time-consuming task. Or if the patent owner is aware of infringement, he may not have resources to defend its rights in Court. Patent monetizers buy patents from the patent owners and enforce the patents against those companies that use the technology without permission.
Basic Patent Purchase Structures
The most straight-forward way to accomplish the patent purchase is sell if for cash payment. Buyer pays cash to the seller, the seller assigns the patent to the buyer. And the transaction is over. While this may be the simplest transaction conceptually, in practice, such a transaction does not always work for the parties involved. Frequently, the sellers believe that their patents are worth more money, while buyers are not willing to pay more cash upfront for a risky investment.
Another alternative is a payment schedule, which is also conceptually simple, but requires a more involved agreement between the parties.
The third type of patent sale transaction involves a relatively small down payment and the remaining one or more payment is tied to the success of a venture involving the patent. For example, the remaining payment may be a percentage of the sales of product covered by the patent. Or in the patent monetization and enforcement context, the remainder of the payment may be a percentage of income the patent or patent portfolio generates. These subsequent payments sometimes called “back end” in the industry. These deals involving the “back end” are the most common because the buyer and the seller are sharing the risk and reword. In other words, if the product, joint venture, or the monetization campaign is successful, both the buyer and the seller are rewarded and if it is not successful, the neither is rewarded.
Selecting a Patent Buyer
First of all, once you decide to sell your patent, you may not even know all the companies that wish to buy patents. Some inventors decide to cold-call or write letters to large companies in an effort to entice them to buy the patents. Anecdotally, however, these efforts do not end well for the patent seller. The disparity in resources plays a role and these large companies end up with a better deal than they would, if they were dealing with a company of comparable size.
This is where the services of an experienced patent broker become valuable. First, the broker knows of the companies who are looking to buy patents. Second, the broker is frequently versed in the industry developments and may suggest approaching operating companies who are likely to develop a product in the technology field. The brokers also have relationships with patent monetizers who may be looking for new patents. Frequently, patent sellers do not have the experience and relationships required to generate interest in the patents, as patent brokers do.
Once companies express interest in the patent, the broker is able to advise the seller on what patent transaction is best suited for a given situation. For example, if one buyer is offering a deal with a high back end, but the venture or the monetization campaign is risky, the broker may recommend selling to another buyer with lower maximum recovery, but lower risk.
For patent monetizers, another aspect that the patent broker may consider when facilitating a patent sale is the history of success and the law firms this particular monetizer has hired in the past and their history of success. Although past results do not guarantee similar outcomes, past results could be considered in this evaluation.
In conclusion, the expertise that the patent owners can expect from patent brokers are:
- Access to buyers
- Experience with structuring a patent sale
- Assessing risks with various patent buyers
- Accessing risks with various transactions
If you have one or more patents for sale, we encourage you to reach out to a patent broker to discuss your options.