Easy Ways to Sell Your Patent
The emergence of intellectual property brokers makes sales of patents accessible to a wider universe of patent holders, including novice inventors.
Martin Eldridge, a rock musician and real estate agent, was driving down California’s scenic coastal Highway 1 from San Francisco to San Diego in 1994 when the muse struck.
“I noticed there’s all this interesting stuff to my right and left,” he recalls. “I was thinking, ‘I wish I had someone around who knew about it.’”
He envisioned an audio, GPS-based tour guide that told you about various points of interest.
“If I drove by a building I’d get a brief synopsis,” he says of his so-called thought experiment. “But if I slowed down, it would give me more information.”
Shortly after arriving in San Diego, he set about patenting his virtual tour guide, a system with “layers of information based on location.”
Despite obtaining a patent by February 1995 – a shockingly fast turnaround by today’s standards – he failed to commercialize his idea. None of the star technology companies responded to his entreaties, and Eldridge spurred the random, low-ball offers of $15,000 to $20,000 for his invention.
Twelve years would pass.
Then came a call from Ocean Tomo, a Chicago-based intellectual property financial services firm founded in 2003. The representative from the odd-sounding company saw Eldridge’s Web site and asked if he wanted to sell his patent at auction.
Ocean Tomo operates live IP auctions – sort of a Sotheby’s for patents.
After making sure Ocean Tomo was legit, Eldridge served up his “Position Responsive, Hierarchically-Selectable Information Presentation System and Control Program” – GPS tour guide, for short – at a live IP auction in San Francisco in spring 2008.
The opening bid – $400,000.
An undisclosed buyer eventually bought Eldridge’s GPS tour guide for $1.1 million.
Minus Ocean Tomo’s seller and buyer fees, Eldridge says he returned to San Diego with a check for $850,000. Not bad for a guy who never invented anything before and who had no demonstrable physical product.
“Financially,” he says, “it was the best thing that ever happened to me.”
Andrew Ramer, who manages Ocean Tomo’s auctions business, says the biggest mistake most patent-holding inventors make is “trying to (sell) it themselves.”
IP sales entail legal and technical landmines. Many companies, for instance, have policies against looking at unsolicited, outside IP. Sometimes, approaching a company can trigger legal action against the soliciting (and naïve) patent holder. Indeed, Ramer cites cases where some companies have filed lawsuits to challenge the validity of patents when inventors tried to sell them their IP. Brokers can reduce that risk. But it comes at a cost. Ocean Tomo charges sellers an upfront fee of $1,000 to $6,000. This filters serious sellers from those with unrealistic expectations. Ocean Tomo also charges sellers a 15 percent sales commission; buyers pay a 10 percent premium.
Still, says Ramer, “There are a number of inventors we’ve made instant millionaires.”
To Market
Selling intellectual property is a viable alternative for inventors, companies and others that possess patents on technologies or products yet don’t have the means or the desire to commercialize them.
Online IP brokerages also have entered the market, including Needham, Mass.-based yet2.com in 1999, San Mateo, Calif.-based IPotential in 2003, and Atlanta-based SparkIP in 2007.
SparkIP allows universities, government labs and corporations to post to its marketplace for free. As of February, the system will have more than 12,000 technologies from more than 70 organizations, says CEO and founder Ed Trimble.
SparkIP also offers users a unique look at the galaxy of patents. Rather than lists of text, the brains behind Trimble’s operation constructed a visual algorithm that displays patents in maps or “clusters,” allowing you to see solar systems of IP and how they fit in the larger constellations of related and semi-related fields.
The Academy of Management Journal reports that 20 percent of inventions licensed by MIT make it to market. Only 1 percent of all university-generated technology disclosures ever ship, says the Association of University Technology Managers.
A similar scenario is played out in the private sector.
Bart Schachter, managing director of San Francisco venture capital firm Blueprint Ventures, says based on “consistent answers we get from talking with dozens and dozens” of Fortune 50-type companies, more than 90 percent of their IP “is not currently being monetized.”
That’s a lot of potential IP.
Suzanne Harrison, author of Edison in the Boardroom and head of IP professional networking site Gathering2.0, concurs, noting that large companies typically derive most of their revenue from just 5 percent of their IP portfolios.
And there’s a brisk market for all that latent IP. In 2004, she says there were about $100 million in patent sales. By 2008, she says, that figure jumped to $1 billion.
Ron Epstein, CEO of IPotential, says many venture capitalists approach him with a similar story – they plowed millions of dollars into developing new technology, but mistimed the market.
“Often, they’re too early,” says Epstein. “The really big ideas are five to 10 years ahead of their time.”
Epstein isn’t a fan of IP auctions. They’re too public and create a sense of urgency to rush deals. Private sales, on the other hand, give buyers time to evaluate purchases, he says. Ocean Tomo’s Ramer says there’s plenty of room for a variety of IP markets.
“If you have 400 patents for biotechnology, the live auction is not the right avenue,” Ramer says. “For other parties, where the portfolios are smaller, the auction is the right avenue.”
Regardless, the emergence of IP brokers makes patent sales accessible to a wider universe of patent holders, including novice inventors such as Eldridge.
“Not in a million years did I think I’d get a six-figure check,” he says. “I had a lot of people tell me you can’t patent an idea, you have to have a thing.”
He proved doubters wrong.
“Anyone,” he says, “can be an inventor.”
