Ocean Tomo and patent valuation methods.

There was an informative article on Phillip Brooks’ Patent Infringement Updates web site where a user inquired about valuation methods and Ocean Tomo, an auction house for patent transactions. My comment to that article is below.

Ocean Tomo appears to be the next step in moving patents from A) being property that can be sold by the inventor to an individual looking to benefit from ownership of that patent, to B) a commodity that can be valued and traded by public opinion and/or rules of supply and demand, akin to stocks the stock market.

I have spoken to guys at Ocean Tomo, and my opinion is that what they intend to do is quite innovative. Right now patents are generally valued by analysts who work either independently and know the technology field or work for the company doing the purchasing. The problem with valuation in its current form is that there are usually only a few people looking at the value of a particular set of patents before an offer is presented for the purchase and/or sale of the patents. However, with Ocan Tomo’s method, the value of a patent is not only (hopefully) valued initially by an analyst, but that value is then CONFIRMED by bids and valuations by those looking to purchase the patents and/or by those who have some sort of input as to the value of the patents.

Of course there is room here for fraud where one can have individuals bidding up the price where the valuations would end up being inflated, but while this will eventually need to be addressed, for now, the goal is to have more of a “consensus valuation” method rather than a valuation by an individual analyst.

Hearing all this, I have not yet formed my opinion which is better. An individual analyst lacks bias. Consensus pricing invites bad behavior which can undermine the goal of their model. However, all this being said, they do run a good business.

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