I wasn't able to spend too much time Thursday at the Ocean Tomo events taking place in San Francisco, but I did manage to sneak in a few interesting conversations with folks in town for the events. One person I sat down with was Steven Hoffman, the CEO of ThinkFire, an IP consultancy and patent brokerage firm. Hoffman and I talked for a while in the Ritz-Carlton's lobby as it slowly filled up with patent wheelers & dealers talking business (or at least talking about the business they wish they were doing.)
This is the second Ocean Tomo event I've attended. Last year, the whispers in the hallways of the Ritz-Carlton were that Intellectual Ventures, Nathan Myhrvold's giant patent-holding firm, would be buying, depending on who was doing the whispering, half or two-thirds or perhaps even more of the patents going on the auction block. (Patent sellers at Ocean Tomo are identified, but the anonymity of purchasers is rigorously protected.)
This year, the talk in the halls is about how much smaller that number will be. No real surprise there: patents aren't immune to the vagaries of the wider economy. And Hoffman says conversations that he has had recently leave him believing that Intellectual Ventures, Ocean Tomo's biggest patent buyer, may indeed be moving out of its "acquisition" phase.
"IV will buy less—they will be less aggressive," says Hoffman. "I just don't know how much they're going to re-trench."
Ocean Tomo sold $19.25 million worth of patents last year in San Francisco. which includes the 10 percent fee the company tacks on to the price of all sales that close on the auction floor. (See the press release [PDF].) The firm, which bills itself an "Intellectual Property Merchant Banc," held three patent auctions last year and plans to hold three in 2009: after S.F., they're heading to Hong Kong in June and Paris in November.
Because most patent transactions are confidential, it's hard to say what share of the market that figure represents, though Hoffman estimates the total U.S. patent market to be around $500 million annually. So it's safe to say Ocean Tomo's auctions account for just a sliver of that rather large number.
But Ocean Tomo is a lot more than just an auctioneer. Its primary business is consulting and providing expert testimony in the IP space. The auction, while a moneymaker, is something of a show. By getting a lot of interested folks together in one place, and producing deals--as well as plenty of near-deals--it helps lay the groundwork for private deals will quietly come together before or after the actual bidding sessions.
Despite all the lip service given to "transparency" by just about everyone I talk to in the IP world, the very insular and opaque world of buying and selling patents is a lucrative business to be in. Case in point: the patent brokerage founded by former Intel lawyer Ron Epstein, IPotential, reported $100 million in sales in 2007. The commission on such private sales varies, but it's substantially more than the 10 percent Ocean Tomo pulls in on its auction sales.
At ThinkFire, Hoffman says, the patent brokerage constitutes almost half the company's business. ThinkFire's 25-person consultancy also helps with assertive licensing (working on a contingency basis) and defensive advisory work (for which it bills hourly). On the offensive side, ThinkFire helps companies identify wholly different industries that its patent portfolio might "read on"—for example, ThinkFire has helped Encyclopaedia Britannica assert its controversial 1990s-era multimedia patents against GPS manufacturers.
But if the worst that can be said about the Ocean Tomo auction is that it's a bit of a show, it's certainly one of the more entertaining--and informative--shows in the buttoned-down world of patents. By the end of my chat with Hoffman, the lobby and sidewalk outside the hotel were filling up with men in suits with "IP Auction" neck badges.
The crowd was composed of mostly corporate lawyer types, with a smattering of bedraggled-looking men who seemed a bit uncomfortable in their suits—some of the latter were surely the "independent inventors" that maintain a great belief, or at least a great hope, in the value of their patented inventions. As one presenter noted last year, it's an "NPE-heavy crowd"—patent-ese for "Lots of trolls here!"
What's truly remarkable about being at an Ocean Tomo auction is that over and over again, you hear about sums—sometimes quite large sums—being spent to acquire the legal rights to things that, frankly, sound like things we already use every day. Take, for example, this year's Lot 1: "Cellular phone with programmable dialable and receivable numbers." Don't those... already... exist? Hmm. The article from last year's auction that best caught the zeitgeist was by John Letzing at MarketWatch: "Inventor to Web 2.0: Actually, I Invented That." A true period piece.
As I left the Ritz-Carlton and walked down to Union Square, the patentistas were still chattering all around me. "The giant thing is claim charts," said a man wearing an oddly oversized telephone headset. "People ask you what you're doing, you say 'I'm doing a lot of claim charts'... " And with that, he disappeared down the steps into the Stockton Street tunnel.
The auction itself happens at 2pm Pacific time today. More to come.