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IP, Patent

Disappointing Results At ICAP Ocean Tomo Auction

So, after my original report and post about the ICAP November patent auction, Joff over at the IAM Blog predicted that “things should be sizzling,”  while also recommending caution.  It seems caution was the recommendation of the day, as only 10% of lots sold, raising around $5 M in revenue.  (IAM Blog – No big bids at ICAP OT auction as most lots go unsold; but value is created nevertheless).  So, it was possible that my value assessment was less than “half right,” but it should be noted that value is in the eye of the beholder. (You’re thinking, “Now you tell me…”)

Of course, the identification of “bargains” in the report looked at below-median pricing.  When selling your house, if every neighbor prices their $300,000 house at $500,000, you may not do much better by pricing your $300,000 house for $400,000.  Joff’s source, Terry Ludlow of Chipworks, noted a few categories of lots that attracted little interest, including lots of only applications, and lots including non-US patents.  It seems that ICAP may simply have accepted too many lots for sale.

In an update to Joff’s original post, he points us to additional reader comments about the auction:

What is unfortunate is that the Auction — being under-supported with analysis and quality patent positions — is still seen by the less knowledgeable as a leading indicator of pricing in the marketplace…which if it ever was once, it clearly is not anymore at this time. The broader marketplace, as you yourself pointed out, has long since moved on from selling anything that moves to selling true value propositions that are well analyzed and well supported. If anything, the latest results simply confirm what knowledgeable people already knew — that the ICAP OT Auction platform itself needs major rework if it is to be significantly relevant going forward.

(On ICAP Ocean Tomo, cojones and the falling price of auctioned patents)

In addition, a helpful summary chart demonstrates the varying levels of success at ICAP Ocean Tomo patent auctions over the past few years. The November auction featured the largest number of lots of any auction, and one of the worst percentages of lots sold.  Also, the average price per patent paid of $51,000 is the lowest by a wide margin.  The large volume of lots available, coupled with a perceived lack of analysis may well have contributed to these dismal results.

Regarding the lots “being under-supported with analysis,” I will note that this report did take a significant effort on my part to compile from a combination of publicly available sources of information, and proprietary analytics software.  I’m not surprised that most buyers wouldn’t go to this much trouble on their own just for an opportunity to spend money.  As for my motivation, Joff also cautioned everyone that it is “important to remember that Anderson and Patent Calls have a product to sell,” but in all honestly, I conducted the analysis and wrote the report because, quite frankly, I wanted to see if I could.

Also, while most people naturally focused on the positive aspects of the report, I also presented some objective information cautioning buyers not to correlate price with value.  For example, I provided three possible explanations for a large pricing disparity between the average and median asking price among the lots having the lowest quality scores (page six):

The largest disparity, $1.7 Million, between average and median asking price is for lots having a Top Q Score less than 34. This could indicate that a smaller number of sellers overvalue their assets by a wider margin. However, since these assets arguably may not be worth as much as the higher scoring assets, a logical explanation could be that outlier sellers have a greater opportunity to establish pricing distance from the rest of the group. Another possible explanation is that outlier sellers use the larger demand to build in a pricing “cushion” and would inevitably accept less than their stated asking price.

I also explained that while sellers appeared to be adopting a “by the pound” pricing strategy (pages 7-9), savvy buyers should know to avoid relying on such logic:

While a large quantity of “low” value patents might be useful to a certain type of buyer, the investor seeking to monetize by licensing acquired patents should study the available lots with a careful eye toward individual quality.

Of course, knowing that some large, high-priced portfolios may not be as valuable as some smaller, lower-priced portfolios and knowing which one is which are two different things, and when there is uncertainty about the value of a given proposition, the smart buyer just saves his money for the next opportunity.  That appears to have happened here as well.  Instead of accepting anyone with $3000 for a listing fee, ICAP may need to institute a more rigorous screening process.  While ICAP’s portfolio contains a significant number of high quality patents, the quality may be difficult spot amidst the noise.  Still, selling 14 out of 30 or 40 lots sounds a lot better than 14 out of 150.  And, by reducing the number of lots at live auction, the buyers have more time to devote to studying a larger percentage of the portfolio, encouraging additional sales.

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Discussion

7 thoughts on “Disappointing Results At ICAP Ocean Tomo Auction

  1. Hi Patrick
    thanks for reporting on the auction as I don’t see anything else reported that would shed any light on what happened

    From doing this for 20 years what I would offer is this: there are really few opportunities for patent sales at this time except for three main avenues: 1) sale to an NPE; 2) sale to an aggregator; 3) sale to a company with a particular defensive need (think HTC). I deal in all three categories so I can tell you that the market for #3 is very sporadic and opportunistic. You may get a call tomorrow for an immediate need, and then never get a call for another 6 months. Aggregators in #2 are prominent enough with their own marketing departments that they don’t need auctions anymore to attract good assets. So the only real game is #1: NPEs. But no NPE is going to invest a huge amount of $$ upfront for an unproven asset. Rather, they will negotiate directly with the patent owner for a small upfront payment coupled with some downstream contingent recovery.

    The Oceantomo auction has lost its purpose in some respects b/c of the growth in NPEs and aggregators. Unless an NPE takes an interest in one of these patents, the number of sales will be small. And the NPEs, in my experience, don’t use stats/computerized analytics to determine the value of patents…. rather, they insist on a real demonstrated infringement by multiple parties, and the read has to be verified by a real patent litigator. Unless the patent meets these tests, there is not much of a market, or at least the value attributed will be very small.

    Posted by JNG | November 27, 2010, 1:32 pm
    • Very insightful comments. I mostly concur with everything you’ve said, and I can’t stress enough to anyone who seeks my advice that before you part with serious money for a patent, you need to have a solid plan for what you’re going to do with it. If your plan includes litigation, then I would go a step further and say that in addition to having solid infringement reads, they should be understood and supported by not just any patent litigator, but the one that is going to be leading the charge.

      I’m not advocating relying on analytics alone to make purchasing decisions. Rather, the proper use of analytics can more quickly filter a variety of opportunities and identify the ones that the buyer should focus on. Absent that, most just glaze over the 150+ opportunities and decide to invest their time in more productive ways. As a result, interest in the auction is lower. Smart NPEs know this and bide their time, waiting for the post-auction period to start their negotiation.

      You also make an excellent point about “all-cash” vs. “cash plus upside” deals. I do have some opinions about these transactions as they relate to NPEs that I’ll likely share in future posts. However, I will say that I agree an all-cash deals can pose problems for the NPE business model.

      Posted by Patrick | November 27, 2010, 2:38 pm
  2. Apparently the MArch 2012 auctions have not gotten any better. ICAP hasn’t put out any comments on ICAP Ocean Tomo auction sales or lack their of.

    Posted by Bill Lynam | May 13, 2012, 9:38 am

Trackbacks/Pingbacks

  1. Pingback: Tweets that mention Disappointing Results At ICAP Ocean Tomo Auction « Gametime IP -- Topsy.com - November 26, 2010

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