The first patent auction held by the firm since the economic crisis began did not go well. In fact, the sell-off proved even more anemic that Ocean Tomo’s loudest naysayers had predicted it would.
While some folks I spoke to before the auction said they expected sales this year to be down by as much as 50 percent from last year, the final results were much worse. Friday’s auction took in just under $2.9 million—more than 80 percent less than the roughly $17 million in patent sales generated by the company's San Francisco auction last year.
Out of more than 80 lots of patents on the block, only six sold. (An Ocean Tomo auction "lot" can include a single patent, several patents, or a portfolio of patents in related technology.) Ocean Tomo tacks on a 10 percent fee paid by buyers, and also charges fees to sellers, meaning the company probably took in less than $1 million for itself.
For the company, an auction like Friday’s has the potential to add value to other parts of its business, which includes litigation support, patent analysis, and a private brokerage service. Conversely, if the other two auctions Ocean Tomo has scheduled for later this year also yield poor results, the company’s broader business could be hurt.
In addition to fewer sales, this year’s lots attracted much less bidding than last year’s. Some failed to attract a single nibble. Instead, there was plenty of drawn-out auctioneering in search of bidders who never materialized.
Ocean Tomo CEO James Malackowski looked a bit shaken by the end of the day.
"Obviously the market has become more selective," he said in brief concluding remarks. "Ocean Tomo remains committed as a market maker. I anticipate there will be extensive post-auction activity. We look forward to seeing you in Paris.” (The French capital is the site for the Ocean Tomo auction to be held in November.)
Ocean Tomo competitors were among those in the crowd Friday. While hardly feeling festive, some of them said the dismal auction results vindicated their more closed-door approach to patent sales.
"Auctions are good for assets where many people understand the value of the asset," said Ron Epstein, who runs the Ipotential patent brokerage in Silicon Valley. "Where they don't, it doesn’t work so well."
Epstein, who I spoke with before the auction kicked off, went on to say that true, widespread transparency is an impossibility in the patent marketplace, because conducting an infringement analysis of just one patent—the first step in drawing conclusions about its actual value or enforcement possibilities—can cost up to $25,000. Ocean Tomo has argued that the transparency of a public auction helps makes sales possible for more patent holders, while providing more reasonable prices to prospective buyers
After the auction wrapped up, I talked to another patent broker and consultant, Ron Laurie of Inflexion Point Strategy.
"There was a lot of speculation run out of the market," said Laurie, who bought one of the six patents sold at the auction on behalf of an unnamed client. Now, Laurie said, purchasers are only looking for patents with “substantial current infringement"—which is to say a patent with immediate value in licensing or litigation.
The major speculation surrounding last year’s auction—and leading up to this year’s—centered around what proportion of patents were being bought up by the biggest player in patent-acquisition, Intellectual Ventures. Friday’s belly flop suggests that however many patents IV bought last year, the company simply didn’t show up this year. Could it be that IV is ending its acquisition phase, and on the verge of finally enforcing its patents—through litigation if necessary?
Neil Smith, a patent litigator with Shepard Mullin in San Francisco, was one of many big-firm lawyers on hand. Smith said he was initially retained by a client to attend this year's even, but that client lost interest as the auction approached. Smith showed up anyway. Having attended the first Ocean Tomo auction in San Francisco in 2006, Smith compared this year’s version to the original.
"That auction was similar in results, but there was a lot more bidding at the early stages," he recalled. "Many of those bidders didn't meet the reserve price." (The reserve price, hidden until bidding begins, is the minimum price at which the sell is willing to sell.)
Smith said he was initially retained to show up at this year’s auction on behalf of a client—"but they lost interest." He came anyway, just to check out the scene.
For anyone watching a particular lot, those that did sell (and for how much, based on what I could make out from the auctioneer): lot 1 ($200,000), lot 19 ($300,000), lot 46 ($100,000), lot 58 ($85,000), lot 59a ($1.5 million), and lot 61 ($600,000). The exact patents in those lots can be viewed in Ocean Tomo's catalogue.
A few random details from the proceedings:
Best name ever for a selling company: Royal Thoughts LLC
Worst name ever for a selling company: Intellectual Property LLC (in a world full of shell IP companies, how is this not taken?)
Most interesting piece of unsold IP: copyrights on more than 15,000 hours of the televangelist broadcasts of Jim and Tammy Faye Baker. Seriously. In case the first 1,000 hours aren't enough for you.
And a final note: Anonymity is rigorously protected at Ocean Tomo's auction events, and one moment demonstrated just how jittery some buyers are about keeping their identities hidden. It just so happened that I was sitting next to the gentleman who wound up buying lot 1 for $200,000, and just a minute or two before the sale took place, I whipped out my reporter's notebook. When an Ocean Tomo employee approached the buyer to get some information, he quickly asked to be moved to a new seat, to get away from prying ears I suppose.
Photo: arctanx.tk / Flickr