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.
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.