IP Merchant Bank or Litigation?

A reader inquired today on my opinion about Ocean Tomo.  Having not worked with the company before, I could offer no opinion, but it caused me to think that measuring success might prove difficult.  Ocean Tomo provides results of successful auctions, but for those that were unsuccessful or chose not to use an auction approach, finding values for the alternative (private licensing or litigation) might prove difficult.

I did a fair amount of research today and was unable to track down a comparison of Ocean Tomo to alternative solutions, but I did find an interesting presentation from a competitor in the IP Investment/Merchant Bank space -- Inflexion Point.  Art Monk and Ron Laurie of Inflexion Point Analytics, LLC made a presentation titled, "Business Opportunity Alternatives to Assertion-Based Patent Monetization" at the November 6, 2007 IP Society Seminar.

Assertion vs. Business Opportunity

Patent Monetization Models

The assertion-based patent monetization model results from viewing a patent as an exclusionary legal right

– Patent owner options:

• exclude the competition (via injunction) or
• tax the competition (via royalties for non-exclusive license)

– Value proposition: “Pay us a royalty or we’ll sue!”

The business opportunity model views a patent as a commercial asset (like real estate or corporate securities)

– Patent owner options: multiple bus-dev opportunities
– Value proposition: “We can both make money here.”

The Players - Assertion/Licensing Model

• Single Inventor Licensing Entities:
– RAKL (Ron Katz), NTP, Lemelson, Fergason
• Institutional Patent Aggregators:
– Offensive - Intellectual Ventures, Acacia, BTG
– Defensive - Open Invention Network (IBM, Novell, etc)
• Corporate Licensing Spin-outs:
– GE Commercial Finance, Lucent,
– AT&T Knowledge Ventures, BellSouth
• Litigation Finance Funds:
– Altitude, Rembrandt, NW Patent Funding, Oasis
• IP/Technology Development & Licensing Companies:
– Rambus, Tessera, Interdigital, AmberWave, MOSAID, MIPS, ARM, TPL

The Players - Business Opportunity Model

• Operating Companies:
- Buyers - e.g., Intel Capital, Microsoft
- Sellers - e.g., IBM, HP, Motorola
• Patent Brokers:
- Pluritas, iPotential, ThinkFire, IP Value
- Semiconductor Insights, Iceberg (UK)
- Bramson & Pressman, Fairfield Resources
• IP Investment/Merchant Banks:
- Inflexion Point, Ocean Tomo
• IP On-Line Exchanges:
- Yet2.com, Tynax
• IP Auctions (on-line and live):
- Ocean Tomo, IP Bewertungs AG, IP Auctions Inc.

See the full presentation here.

Comments

[Nicole]

This post is a great overview of the IP industry. Thanks for compiling this.

[Robert Z. Cashman]

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.