For the first 100 years of US patents, inventors kept their patents and practiced them. Samuel Hopkins, received the first US patent for an improvement – in the making of pot ash and pearl ash by a new apparatus and process. The Wright Brothers manufactured airplanes – or “aeroplanes” as they were called then. Buying and selling patents is a relatively new phenomenon that has gained momentum in just the last few years.
Patents are property just like about any other type of property. Patentees have the right to sell, assign, or license the patent as they see fit, or to buy more patents to complement their portfolio. There has been an increase in the number, size and dollar amount of patent sales. That is because patents serve as both ammunition in the patent wars and armor to use when opponents attack. Patents can provide significant financial returns, and they are now more valuable than ever.
However, patents — unlike virtually any other asset a business can purchase — cannot be modified. For example, a business can spend millions to buy a factory, then remove all the equipment and make it a warehouse, or add windows and doors and make it a retail store. Or they could buy it just for the land, tear down the original building, and put up a new structure or structures. Obviously, you cannot do that with a patent. It might have applications for another field of technology than the one the inventor intended, but even in that scenario, the patent itself cannot and will not change — just the mode of practicing it. Remember that a patent does not give the owner permission to practice an invention, but provides the owner with the right to exclude others from “making, using, selling or offering for sale” any product or service that includes the patented invention.
Many patent owners do not know where to begin when they decide to sell or buy patents, because selling or buying patents is so different from other types of property transactions. To save themselves a great deal of valuable time, and to make sure they get the right price for their patent (if selling) and the right patent for their purposes (if buying), many businesses turn to a patent brokerage firm to enable a successful transaction.
On the seller’s side – Finding a buyer for a patent is the ultimate needle-in-a-haystack search. The buyer has to need exactly what is covered by the patent because each patent covers a specific invention. Perhaps it is precisely the invention that another company needs — but how do you find that company (or the one with just the patents you need), much less negotiate a fair price for both parties?
That is where a patent brokerage firm comes in. Like a real estate broker, a patent broker knows how to find the needle that is buried in one of several dozen or even a few hundred haystacks.
A patent broker is also much more knowledgeable about how to price a patent. Going back to the real estate analogy, a real estate appraiser can come up with a fair market value for a house by looking at comparables – what similar houses in the neighborhood sold for. That can be done with some patents if the broker can find patents with similar technology, but many patents are totally unique, so there are no comparables.
Pricing the patent for sale is critical because if you price it too high, you scare off a potential buyer, but if you price it too low, you could end up leaving money on the table. Only a patent broker – whose business is the buying and selling of patents – has the expertise to come up with an asking price that will solicit interest while not giving away potential dollars.
With extensive contacts in many industries, the broker can act as a “matchmaker” between patent sellers and patent buyers. The broker helps determine a dollar value for the patent portfolio, and then assembles a package that includes all relevant information (such as evidence of use charts, file histories, market research and competitive landscape, uses of the patent, and encumbrances, if any), showcases the patent(s) for sale, and presents a comprehensive brokerage marketing package to buyers. A buyer’s due diligence process may take a few months and include a prior art search, so presenting prospects with plenty of useful information helps both parties.
Patent brokers, like real estate brokers, usually work on a commission that is paid upon completion of the sale.
Have your cake and eat it too
If you are practicing a patent, but your broker finds it an attractive patent he believes he can sell, you can sell it and license (commonly called a grant back) it back from the new owner. If you previously licensed a patent (referred to as an encumbrance), you can still sell it as long as the new owner agrees to honor the terms of the licensing agreement.
There are vast amounts of unused or underutilized IP assets out there, just looking for a market. And there are potential buyers who wish to buy patents on specific technologies but do not know where to find sellers, and sellers that do not know how to begin the negotiation process or set a price on a patent in the first place. (There is no Kelley Blue Book for patents, after all.) An experienced, reputable patent broker has the experience, connections and skills to bring buyers and sellers together.