Patent Auctions are where patents go to die.

I was just reading the New York Times article by Steve Lohr about how exciting it is that Zoltar Satellite Alarm Systems will be placing their patents up for auction as if a patent auction were some new and exciting forum where valuable patents can be made available for the public to benefit from them. The funny thing is that in my opinion, patent auctions are where patents go to die.

The article continues to boast Zoltar’s patents stating that they have been litigated many times as if that boosts their value. I chuckled when I read this because the fact that the patents have been litigated only indicates that the value of the patents have deflated (like air escaping from a ruptured balloon) because there are no longer valuable prospects to sue. On top of that, I was surprised to see that the article mentioned that even in the lawsuits they initiated, the patents were found NOT to infringe which suggests to me that the value of the patents are even less than I thought they were by the impressive subject matter description of being a personal alarm device that transmitted a person’s location. In other words, it suggested to me that the patent claims were too narrowly drawn or were vague and unenforceable. Otherwise, unless the settlement offer was substantial (and a few million dollars is substantial, but the article suggests that they also spent a few million dollars which means they are only breaking even if they are lucky), there is no reason to settle unless Zoltar just wanted to get out of the lawsuit with the shirts on their backs because they learned at the Markman hearing that their patents had serious flaws and that it was not clear that they would have succeeded at trial.

I also found it interesting (and even funny) that the author gave a plug to venture capital companies like Intellectual Ventures, Acacia Technologies, Altitude Capital Partners, Intertrust, IPotential, Ocean Tomo, Rembrandt IP Management and Thinkfire. The reason I found it funny is that some of these companies (e.g. Acacia) are well known as being patent trolls who purchase patents for the purpose of licensing them to others under threat of suit.

Some of the other names on this list, such as IPotential, are not patent trolls, but are actual patent service companies who take a patent portfolio, wrap it up in a nice package where the value of the patents are clearly visible to buyers, and then find buyers who pay top dollar for the valuable patents they sell (quick plug and regards to Ron Epstein, the founder and CEO of IPotential). I find this service to be valuable because Ron knows the patent market and is not about to broker the patents off to a venture capital company who wants to pay pennies on the dollar for the patents. If I had some good patents to sell, I’d seek out Ron and convince him to take me on as a client before looking to any of these others on the list.

Another name on this list is Ocean Tomo, a patent auction house which holds fancy auctions in foreign countries making the whole process seem beyond five-star; I have written about them in the past. I like the concept of Ocean Tomo — they’ll package your patents in their high quality catalog with glossy pictures and fancy photos (I wouldn’t be surprised if each catalog cost them upwards of $15-20 each based on the high quality). However, the chuckle here is that just because their catalog is beautiful doesn’t mean the patents have any value. A prospective buyer will need to analyze the patents in depth as they would for any other patent purchase because listing it on Ocean Tomo’s auction does not mean that there is any value to the patents. On another note, sadly, I hear that attendance to Ocean Tomo’s auctions have been dying down and that only a fraction of patents listed recently have been sold which means that the auction house patent sale model might be losing momentum. That being said, I still like their idea of trading stocks on some kind of stock market forum. I’d succeed there because as a patent attorney and a patent litigation attorney, I’d see the valuable stocks and buy shares in them in an instant and watch the value grow in my patent stock portfolio.

All this being said, it’s sad that the NY Times article is describing old players and making them seem new. Intellectual Ventures has been buying up patents forever. Acacia has been a patent troll forever. Ocean Tomo has been around forever. Some of the newer names such as Rational Patent Exchange in my understanding are offshoots of Intellectual Ventures (the same guys are running each patent chop shop), except they run the business like the mafia, stating, “buy into my elite club and you we’ll protect you against patent trolls. Decide not to buy into our club, and we’ll sue you ourselves with our army of patent litigation attorneys.”

I could go on, but in sum, there doesn’t seem to be anything new or exciting presented by this article. Just old sheep in new clothing, however the cliche goes.

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Robert Z. Cashman, owner of Patent Prophet, is a contingency fee patent litigation attorney in Houston, TX. He works for a law firm that specializes in contingency fee patent litigation, and in the past, he worked in house for a patent company as both a patent attorney and a patent acquisition specialist, where he interacted daily with inventors looking to sell their patents.