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Patents up for auction
International IP experts agree that the growing economic potential of patents in key markets is reflected in the recent trend towards patent auctions.
Public auctions of patents and entire
patent portfolios are increasingly making headlines in the mainstream media.
With multi-million euro bids being placed on securing the patent rights to an
invention, it seems that patents are becoming "big business."
And while these events make the field of intellectual property (IP) accessible to broad audiences, they also pose deeper questions.
- What is the economic potential of patents in the marketplace?
- What are the criteria for putting a price tag on patents as financial assets?
- And finally, have patents fuelled the rise of successful enterprises or even entire industries, i.e., are there fields where they hold particular economic significance?
A more active approach
IP experts are noticing a new direction in the way companies utilize their patent rights. "We are seeing a shift away from the classic defensive use of the patent system towards other, more active uses," said Nikolaus Thumm, EPO Chief Economist.
"We are seeing exploitation of patents for securing priorities against competitors and patents are becoming part of business strategies. The final stage is public auctions, with IP being a financial asset and treated as such."
Asked about the overall merit of public patent auctions, Bruno van Pottelsberghe, Associate Professor for Economics and Management of Innovation at Solvay Business School at the Free University of Brussels (ULB) and a senior fellow at Bruegel, said: "It's good for an easier monetization of patents, provided that the patents concerned are of high quality and provide sufficient inventive step. Otherwise the auction might as well be a hold-up."
Determining value
So how do you put a price tag on a patent or patent portfolio?
"You need to look at a patent in terms of sales, license and litigation value. While some of these factors may overlap, there are certain specific factors for each of those," said Andrew T. Ramer, Managing Director of Transaction's Practice at Ocean Tomo and President of Ocean Tomo Auctions in Chicago.
"In all areas, the size of the market and its opportunities are important, and what exactly the patent claim covers. The age of the market also matters and its potential future size."
Ramer added: "From a sales perspective, you want to look at comparable transactions - what things have sold for in the past. In terms of licensing you need to consider the typical royalty rate for that industry."
"Geographically, companies also need to know where their business will be conducted and secure the patent there. A patent is nothing else than a right to stop people from using your invention. So you want to make sure to have it in your jurisdiction."
New technologies
Certain industries rely more heavily on patents than others. Some use them for the exploitation of commercial benefits of inventions; others rely heavily on patents for the protection of intellectual capital.
"Patents play an important role in the so-called ‘new technology' sectors, including biotechnology, ICT and nanotechnology," said Thumm.
Understanding the economic relevance of patents in the marketplace requires a closer look at how certain sectors operate. "Patents have the biggest impact in those industries in which the quantification of knowledge is well structured and organized - for example in biotechnology and pharmaceuticals - because here, an invention can be summarized in a codified molecule," said van Pottelsberghe.
The future of IP auctions
As the economic relevance of patents increases, the structures for trading and monetizing patents are growing accordingly. "We have seen great progress in Europe when it comes to transacting IP," said Ramer at Ocean Tomo.
"Many companies hadn't considered selling patents as an option before. We have already sold for a number of leading European companies and inventors and this is now helping to create a European market for transactions," he said.
As Chief Economist Thumm concluded: "Patents are no longer a mere technical field, but have also reached the management level within companies. We are now moving towards a system where patents have become tools for financial exploitation."