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There Is No Yelp for Patent Brokers – 10 Best Practices for Picking a Patent Broker

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Clients often ask us to help them find a patent broker. Unfortunately, unlike real estate brokers, you cannot simply look up patent broker reviews on Yelp. With new brokers entering the market, old ones leaving, and little market transparency, it can be difficult to pick a patent broker. And this is a problem because some brokers have much higher sales rates than others. The brokers in the green circle bring about ten deals to market each year and have a sales rate much higher than the market (for this data set, 20% of the packages had sold). Brokers in the red circle are challenged with lower sales rates. You want to pick brokers in the green circle.

Looking at Figure 3 of our latest paper on the patent market, each dot represents a patent broker. The y-axis is the sales rates for that broker. The x-axis is the number of patent packages brought to market by that broker. The brokers in the green circle bring about ten deals to market each year and have a sales rate much higher than the market (for this data set, 20% of the packages had sold). Brokers in the red circle are challenged with lower sales rates. You want to pick brokers above the red line and may want to consider picking brokers in the green circle.

Here are ten best practices for choosing a patent broker.

1. Interview 5-10 brokers

  • How well does the broker understand the market for your patents? Who is buying? What kinds of patents sell? Is your technology hot now?
  • What are their rates? Ask them what they charge and how.
  • What kinds of issues are likely to come up in diligence?
  • Do you like the person? You will be on many calls with them. They will be representing you and your patents.
  • Ask the brokers if there are engagement terms that surprise sellers.
  • What is their track record? How many packages do they bring to market each year? How many do they sell?

You can find a list of patent brokers on our website.

2. Get examples of old packages and closed deals

  • Ask the brokers for 1-3 example sales packages they have brought to market. Review them and think about how you would react to the package if you were buying patents.

 3. Understand the broker’s and the owner’s roles

Broker:

  • Helps package and sell your patents.
  • Communicate with potential buyers.
  • Help guide buyers and sellers on pricing. Coordinate any bidding.
  • Communicate with you about the status of your deal.
  • Help you understand requests from buyers.

Owner:

  • Ensure that communications from the brokers meet your standards.
  • The broker is positioning the portfolio the way you want.
  • You are receiving regular updates.
  • Decide whether you will accept the offer.
  • Negotiate the purchase agreement. The brokers can help here, but they are not your attorneys.

4. Obtain an estimated sales price and estimated sales time for your patents

  • What pricing estimates are the brokers giving you?
  • How long will it take to sell your patents?

5. Understand key terms in a broker agreement

  •  How is commission calculated? Does the broker make more money if they get you more money (a good idea)?
  • What happens to the broker’s costs? Are there caps on costs?
  • What is the tail? How long will it be in place? The tail is the length of time after the representation ends in which the broker would still receive some commission.
  • What rights might you have to waive? Damages, notice?

6. Learn about factors that drive value in patents

Here are some factors that tend to drive value in patents; ask the brokers their thoughts.

  • Claim charts or evidence of use – is someone infringing today and can you show it?
  • Age – buyers tend to focus on older patents (at least eight years from priority) that have about five to ten years of life remaining.
  • Open continuations – is there an open continuation on the key patent(s) in the package?
  • Which technology areas that are hot.

7. Learn about the patent market

  • Although there is not a lot that has been written about the patent market, there are people to follow it and talk about it. We write an annual paper on the patent market; there are industry events where patent markets are discussed.

8. Set your expectations based on market data, not just anecdotes

  • Pricing, time to sell, who buys, and who sell are pretty well understood and there are free reports on this information. Spend half a day reading up on the topic, then set your expectations based upon that data.

9. Be ready to sell yourself and your portfolio to the prospective broker

  • This seems counterintuitive. You are the patent owner, should not the broker be selling their skills to you. Yes, that is true, but it is also true that the best brokers can be picky. The best brokers have sales rates twice the market rate. Spending time to present your portfolio, the market opportunity and your background will help you get the best brokers to work with you.

10. Consider your skin in the game – there is a cost to picking one broker over another

  • Some brokers are asking for upfront fees to cover some of their costs. Upfront fees are usually in the $5-15K range for smaller portfolios. However, upfront fees are not your only costs. Your patents are slowly expiring, your time and reputation matter, and you could be going with someone else. These are all costs to you.

2015 Brokered Patent Market

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Our analysis of the patent market is now available in the January/February (issue #75) of IAM Magazine. Here are some of the highlights:

  • Asking prices are down ~$50K, but not by as much as you would have thought.
  • The Alice decision has killed the sales rates (the percentage of packages sold) for business processes patents but has had much less of an effect on software patents.
  • Patents with EOUs (light claim charts) have higher asking prices (+$50K) and selling rates.
  • We sized the market at about $230M in closed patent transactions.

Additionally, we show the total asking price of deals we track has grown over time to almost $7B. The graph below includes both brokered and private deals in our database of over 2200 patent packages with over 64,000 patent assets.

Download the paper here.

Patent Return on Investment: The Strategic Counter-Assertion Model

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Questions your CEO may ask of you about your patent program:

  • How much should we invest in patents this year?
  • Which ones should we get?
  • What is my return going to be?

To find answers, look to the July/August issue of IAM Magazine for our latest paper, “The Strategic Counter-Assertion Model for Patent Portfolio ROI.”  We show how to build a financial model by targeting the revenues of other companies according to the patent assertion risk they present. The model  effectively defines your patent development and external acquisition strategies. We include example models and a workflow to build your financial model.

Download the paper here.

Has the Patent Market Collapsed? No. Quarterly Report (2015 Q2)

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With the negative press around court decisions against patent holders, you might have heard that the patent market has collapsed/is collapsing. So, is it? In short, no. Looking at the first half of 2015 compared to the first half of 2014, patent package sales are up 39%. 

At the ROL Group we track the packages for sale on the brokered patent market in our proprietary database and analyze the USPTO assignment database each quarter to identify sales of unsold packages from the past few years. We identified 42 package sales with the transaction occurring 2015 Q2. In this post we will share the top buyers and sellers from the quarter and look at sales trends. 


Top Buyers from 2015 Q2

It was no surprise that Intellectual Ventures continued to be a top buyer, this time buying as III Holdings 6, LLC. But in this case, all of the purchases we found were bought from Xerox, this quarter’s top seller; it’s likely that IV created a bundled deal to purchase all of the Xerox packages. RPX, the other top package buyer seems to have focused on smaller packages than Intellectual Ventures did and purchased their 7 packages from 6 different companies. Nineteen (19) additional sales were found that occurred in 2015 Q1. 


Top Sellers from 2015 Q2

As far as the sales trends are concerned. We are continuing to see year-over-year growth sales with every quarter having had more sales than the previous year’s corresponding quarter. The average year-over-year growth in the past four quarters almost 40% (compounded quarterly sales increase of 8.6%).  It is important to note that the average size of packages has been decreasing (See our paper on the 2014 Brokered Patent Market) and, therefore, an increase in packages sales does not necessarily mean an increase in total asset sales.

Package Sales by Quarter

For more information about the qualities of packages that sell, take a look at the PDF of our analysis of the 2014 brokered patent market in IAM Magazine and keep an eye out for our analysis of the 2015 market to appear in IAM Magazine early next year.

Methodology update: We have updated our process to use the executed date of the assignments at the USPTO, rather than the recorded date, based on the updated USPTO assignment site. This increased our data accuracy, but may cause some difficulties in comparing with prior reports.

Richardson and Oliver Named in IAM’s World’s Leading IP Strategists

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ROL Group partners Kent Richardson and Erik Oliver have again been named in the IAM Strategy 300 – The World’s Leading IP Strategists.

The IAM Strategy 300 is an annual list compiled by Intellectual Asset Management (IAM) Magazine that identifies the industry leaders in developing and implementing strategies that maximize IP portfolio value. To qualify for a listing in the IAM Strategy 300, a person must be nominated by others from outside of his or her own organization and have what IAM calls “exceptional skill sets, as well as profound insights into the development, creation, and management of IP value.”

This is the seventh year that Richardson has been named to the list, and the sixth year that Oliver has been named to the list.

Sales on the Rise – 2015 Q1 Analysis of Sales on the Brokered Patent Market

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At the ROL Group we perform quarterly analysis on patent packages offered for sale on the open market and our 2015 Q1 analysis showed that the number of sales is trending up significantly. 2015 Q1 sales are up 81% over 2014 Q1.

While sales are trending up, the asking price per asset is has been trending down as discussed in our IAM article 2014 Brokered Patent Market.

To determine sales we cross check each patent in every brokered package with the assignment data from the USPTO website. If a single asset in a package transfers from the listed seller to an outside entity then we consider the entire package sold as of the date the associated reel/frame is recorded by the USPTO. While this procedure is the same as in previous articles, for this post we did all analysis based on the recorded date of the sale rather than when it was identified.  Due to USPTO delays in recording assignments, the 2015 Q1 sales may be understated.

Who is buying?

The top buyers in 2015 Q1 were RPX, a Canadian numbered company, and Intellectual Ventures, for their Intellectual Investment Fund 3. These buyers accounted for 42% of all of the packages purchased in 2015 Q1 and RPX alone accounted for 28%. Other companies that purchased multiple packages and their recent buying history can be seen in the chart below.

IV’s Buying Activity

We previously discussed Intellectual Venture’s buying in our blog post, Intellectual Ventures is Buying Again and our July/August 2014 IAM paper What’s Inside IV’s Patent Portfolio. Because they represent such a significant portion of the market, we want to revisit it for an update.

As can be seen in the above graph, December 2014 through February 2015 represents a return to buying after a short hiatus. It should also be noted in February 2015 we identified a reel/frame representing the assignment of 16 assets from Spansion, LLC to III Holdings, LLC. For our analysis, we are treating this purchase as 1 package, but it is important because we believe that IV actually cherry picked assets from a list of approximately 2800 assets related to flash memory semiconductors.

By looking at the purchase rate of assets rather than packages, we projected asset purchases by Intellectual Ventures as follows:

Based on their Q1 purchases, we expect to see IV purchase slightly more assets this year than last year. This is nowhere near their peak buying of ~5600 assets in 2008, nor their buying from 2007 to 2013 which accounted for at least 3000 assets per year.

Who’s Buying? Quarterly Report (2014 Q4)

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At the ROL Group we carefully track the packages for sale on the brokered patent market in our proprietary database.  This quarter we analyzed the USPTO assignment database to identify sales from unsold packages from the past few years. We identified 37 sales and in this post we will share the top buyers from the quarter.

Buyers identified as purchasing multiple packages in the ROL Group 2014 Q4 sales review

III Holdings is a comprised of the packages purchased by III Holdings 1, LLC. and III Holdings 2, LLC.. As identified our previous blog post, Intellectual Ventures is Buying Again, III Holdings 1, LLC is the name of the of Intellectual Ventures Invention Investment Fund 3 (IIF3). We are assuming that III Holdings 2, LLC. is also a part of IIF3. So, Intellectual Ventures is again the most dominant buyer in the market.

Process

It is important to note that these are exclusively purchase from the brokered market and do not include private purchases.

In order to identify a package as sold, the assignment data for each of the US issued patents in a package is compared to the deal intake date in our database. If the recorded date of an assignment of any asset is found to be after the deal intake and the assignment if from the entity listing the package to a different entity then the entire package is marked as sold. These records are human reviewed to account for internal and historical assignment cleanups. Additionally, the recorded date is used rather than the executed date because there can be multiple executed dates within one Reel/Frame.

However, because sales are based on the date on which the sale is recorded at the USPTO, both the identification of the sale and the date of sale may be delayed. Many buyers do not immediately record their sales with the USPTO after the deal closes – the average delay is three months, based on spot-checks of a random sub-sample of the sold packages. For this reason, some of the sales listed above may have actually occurred prior to 2014 Q4

Buyers and Sellers in the 2014 Brokered Patent Market

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Today, IAM Magazine will publish the ROL Group’s third annual report on the brokered patent market. The article will appear in the January issue of IAM, and is now available on our website.  We wanted to use this opportunity to highlight two key points: the types of entities that are buying and selling patents and how their behavior has changed over time as well as the tech areas that are selling.

Now available for download from our website (updated March 19, 2015).


The chart below is similar to one in the IAM article; however, here we compare the sales data from January 1, 2013 through July 7, 2014 to the sales data from January 1, 2009 through December 31, 2012 to highlight changes over time.

The largest change is the drop in the percentage of total purchases by NPEs. The decrease in NPE purchasing activity likely relates in no small part to a decrease in buying by Intellectual Ventures while waiting to fund its Invention Investment Fund 3. We have started to see Intellectual Ventures resume buying, so the NPE number may rise in the coming year. Decreased NPE buying increases the percentage of total purchases for other entity types and moves operating companies into the number one spot for buyers. On the sellers side, NPEs were also seen to sell more, though no NPE sold more than one package, and defensive aggregators sold less than in previous years.

Next we wanted to look at what types of assets are selling:

When we receive a package for sale, we classify it into one of 16 general technical categories and 98 sub-categories. Using the general technical categories, the sales data demonstrates the market being skewed towards internet computing. Application software, cloud computing, and system infrastructure software account for 55% of the sales. It should also be noted that the listing rates for tech categories are related the sales rates, but neither the rates nor the ranked technical category order are the same.

Please take a look at the full article for many more details including analysis on brokers, package flow, prices, package sizes, sales rates, factors that increase sales rates, and the total market size.

2014 Brokered Patent Market

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In December, IAM Magazine will publish our third report on the brokered patent market. The article will appear in the January issue of IAM, and will be available on their website to members December 1.  We hope that you find the information useful in your patent buying, selling and valuation. Below is a sneak peek of some of our findings.


Overall, the market is softening with a lower percentage of packages selling, and those that do are selling at a lower price. We estimate the market size to be $260M (2014 Market) vs. $283M (2013 Market) and to employ 173 people worldwide in 58 brokerages.

The chance of selling a package has decreased significantly, as has the sales time frame. Packages listed in 2009 had a 51% chance of selling over 4 years on the market. We estimate that only 22% of packages listed in 2014 will sell.

Packages on the market have decreased in size. This creates a larger number of packages on the market with just a few assets. Notably, smaller packages (<5 assets) account for about a third of sales. Therefore, of the expected 22% total sales, most will be small packages.

Asking prices dropped; the average sales price per US issued patent has decreased 23% from the $467K (2013 Market) to the $360K (2014 Market).

The market is heavily skewed towards software and cloud computing as the three most common categories: application software, cloud computing, and system infrastructure account for almost 50% of the listed packages.

Semiconductor is the fourth most common technology category for packages, but the price per asset in this category is much lower than in other categories.


Our IAM paper also includes data relating to the types of organizations buying and selling, buyers’ filtering and diligence processes, what buyers expect of brokers and much more.

As always, we continue to collect and analyze data about market to find new trends and make new insights to gain a deeper understanding of the patent market.

Intellectual Ventures is Buying Again

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IV’s new fund bought 16% of all the packages sold in the first half of 2014. As a follow up to our article “What’s Inside IV’s Patent Portfolio?” we examined Intellectual Venture’s recent buying practices, and in particular, buying for their new fund. We found 14 recorded assignments to III Holdings 1, LLC; this is IV’s new Intellectual Investment Fund 3 (IIF3). Although there has been speculation in the broader community about whether IIF3 is funded, we believe that these assignments are public evidence of funds committed from IIF3.

At the ROL Group we perform quarterly analysis on patent packages offered for sale on the open market. We saw a significant number of packages purchased by III Holdings 1, LLC. RPX has identified this III Holdings 1, LLC as an NPE entity. III Holdings 1, LLC could not be found as a litigant in any patent litigation. However, we have confirmed that this is a holding company for Intellectual Ventures’ IIF3 buying.

Using assignment data from the USPTO website to identify sales, our Q1 review identified 35 package sales and our Q2 review identified 50 package sales.  Of these, III Holdings 1, LLC was the assignee on 5 (15%) of the sales identified in Q1 and 9 (18%) of the sales identified in Q2. The details of the packages are as follows:

As for the money IV spent on these assets, an approximation can be made by scaling down the expected sale price to 65% of the asking price, as described in “The Brokered Patent Market”. Using this method, $4.39M of IV spend was identified in the Q1 review and $8.06M in the Q2 review for a total spent of $12.45M. Not anywhere as high as past years, but IV is buying in IIF3.

Using the actual assignment dates, the following histogram represents IV’s estimated spend per month on open market patent deals in IFF3 since the first confirmed assignment.

Importantly, IV is successful at buying at the low end of the market so the estimated total spend may be high. The flip side, is that private purchases are not reflected above, if private purchases were included IIF3 spending would be higher.