Those seeking ways to generate revenue from their patentable ideas will find the recent NY Times article entitled “Patent Auctions Provide Protections for Inventors,” written by Steve Lohr, to be an interesting read. However, as someone who works with entrepreneurs and corporations wishing to monetize their patent rights, I find it necessary to comment on the assertion that patent auctions can operate to “provide protections” for independent inventors, as well as the underlying premise that these it is generally possible for non-corporate inventors to generate value from their patent rights irrespective of the underlying subject matter of the patents.*
As an initial matter, the NY Times article states that “[independent inventors] can often find themselves in court, battling big corporations, spending piles of money on lawyers and leaving it up to judges and juries to determine the value of their hard-won patents.” This makes me wonder if the fact-checkers took a break when this article was presented for publication. The story of the lone “David” inventor battling in court against the evil “Goliath” corporation that steals a patented idea not only does not occur “often,” relative to the number of patents issued each year, it almost never occurs–a fact that may be lost in view of the Hollywood vision of the down-trodden inventor.
Next, the NY Times article implies that patent auctions are a new phenomenon with unknown, but promising, potential. This is not true. The patent auction model was introduced by Ocean Tomo in 2006, from which there are several years of data to gauge the value of patent auctions to independent inventors. While there have been some significant sales of patent rights at these auctions, no one who works in the patent monetization space would say that this transaction model has served to markedly increase the number of sale opportunities for any patent owner, whether independent inventors or otherwise.
As a substitute for the credulous conclusions in Mr. Lohr’s article, we can look at real numbers that validate whether patent auctions can “protect” or even measurably help independent inventors. Marcus Malek of the Intangitopia Blog has compiled all sale results as reported by Ocean Tomo. To summarize Marcus’ data, in the first 8 auctions, 243 sets (or “lots”) of patents were sold, but only 90 of these were sold by individuals. (Of all lots offered for sale, only 41% of actually sold.)
While there is no recent data on how many patents issue yearly in the US to independent inventors, let us assume for the sake of argument that a relatively low 20% of patents are not assigned to corporations upon issuance. In 2008, approximately 158,000 patents issued, making about 31,600 patents owned by individual inventors (when 20% is used as the baseline measure for non-corporate patent oweners). When, as shown by Marcus’ data, only 90 individual inventors were involved in the 8 Ocean Tomo auctions, it becomes clear that patent auctions have assisted only a very small number of independent inventors who wish to sell their patents. (And, if these 31,600 patent owners “often” were faced with litigation, we would likely would not need the NY Times to tell us about the problem because the Federal Courts would be screaming for relief from such massive amounts of litigation.) So, notwithstanding Mr. Lohr’s boosterism about the value of patent auctions, the data show that this model offers very little “protection” to independent inventors.
Perhaps more significant than the above-discussed misleading characterizations about independent inventors and the supposed “protections” afforded to them by patent auctions, Mr. Lohr’s article serves to reinforce the notion that one can get rich by getting a patent on a unique idea. This belief, which forms the grounds upon which a majority of independent inventors spend many $1000’s on patent rights and often years of effort, is all-too-frequently misguided. Frankly, if all it took was a patent to make money, there would be a lot more rich people in the US. No shortage of good ideas and patents covering them exist, but, unfortunately, there are few outlets exist for independent inventors to sell their inventions. This means that the probability that an independent inventor will be able to sell his or her patent rights to a third party are exceedingly slim today.
To make the odds of successful monetization even longer for most independent inventors, any patent rights that have been successfully transacted in recent years have primarily comprised “high tech” inventions, which represent only a small percentage of the categories of patent technologies. (For an overview of technologies successfully sold at auction, Marcus Malek’s data is again instructive.) This means that whatever marketplace has emerged for patent rights in recent years has developed primarily to facilitate sale of this specific type of invention. Certainly, all patents cannot be suitably transacted using a one-size fits all approach. Some inventions, such as those involving chemistry or materials science, do not lend themselves to being readily transacted, whether in an auction format or otherwise.
To this end, one can imagine what the art market would be like if, say, only Impressionist art works could readily be bought and sold. Would this mean that someone owning art that did not fall into this specific category had no value other than held its owner? Perhaps not, but as the current US real estate market illustrates, the absence of a willing buyer no doubt greatly influences the price obtainable for property.
This is the position that independent inventors find themselves today: some patents are worth lots of money because one or more willing buyers exist, others have no current transactional value due to the fact that no buyer can be identified. Put simply, there are far more inventors who wish to sell their patented ideas than there are entities that wish to buy them. This fundamental disconnect must be addressed before any significant and consistent market for patent rights emerges, whether in the form of patent auctions or otherwise.
Fortunately, I believe that we will see the market for patent rights evolve somewhat in the near future as Open Innovation becomes a more prevalent product development model for US and foreign corporations. That is, when more corporations look outside their own organizations for innovations, more opportunities will exist for IP owners in a wide variety of technology areas.
Significantly, however, these additional opportunities to sell patent rights will not help those IP owners with patents that are simply not wanted. Any patent that does not cover an existing or emerging business model is effectively worthless. No matter how much is spent to obtain it, a patent that covers a widget that no company wants will never have any transactional value, whether at offered at auction or otherwise.
The primary reason that most independent inventors find it difficult to make money from their patented ideas is that they are selling something that no one is interested in buying, either because their patent does not cover anything of commercial relevance or there is no company who sees it necessary to buy those rights. Rather than than place their hopes on patent auctioneers, independent inventors would be better served by seeking to patent ideas relating to commercializable products or technology in areas where corporate buyers are likely to exist.
* Some might also find Mr. Lohr’s article curiously in alignment with this press release http://www.your-story.org/pluritas-will-auction-zoltars-gps-emergency-locator-patents-35057/.