The gavel will fall
tomorrow this Thursday at the ICAP Ocean Tomo Spring Auction in New York City, following the heels of some very disappointing results in its last effort. Also for sale at the auction a number of unique (to the auction world, at least) lots involving covenants not to sue, rather than the more traditional exclusive licenses and outright ownership. I share Joff Wild’s skepticism when he asked a few weeks ago, Does Round Rock expect to get bids for its covenants not to sue at the ICAP OT sale?
In fact, since originally announcing the CNS’s availability, ICAP has listed similar offerings from Neomedia Technologies and Walker Digital. On the prospect of actually selling lots such as these, Joff commented:
Anyone who is tempted to bid might find that what they think is a realistic offer comes nowhere near Round Rock’s valuation. And if you do bid, you had better make sure you are doing it anonymously. Doing anything else is just asking for a writ, is it not?
But there’s a catch-22 on a CNS bid. In a “normal” auction (where the seller is offering all substantial rights to a portfolio), the winning bidder will, for better or worse, be stuck with the consequences of the auction. A really high selling price, for example, means the portfolio was highly valued by multiple bidders, but also increases the buyer’s investment, making it more difficult to profitably monetize the portfolio. Conversely, a really low selling price gives the buyer more negotiating room to execute a monetization strategy, but may also suggest that the portfolio lacks significant value (otherwise it wouldn’t have been so cheap).
In either circumstance, however, the seller really doesn’t care. If the seller was trying to maximize the total dollars earned from a patent portfolio, it wouldn’t be in the auction in the first place. So whether the buyer gets a good deal, or a bad deal, as long as the purchase price meets the seller’s expectations, nothing else matters.
In a CNS auction, however, the seller is retaining ownership of the portfolio and selling only the freedom to continue operations without the apprehension of a potential lawsuit. Thus, the seller is stuck with the results of the auction, good or bad, and has a vested interest in extracting the highest amount possible. On the buyer’s side, presumably, only companies that legitimately perceive the portfolio as a threat would have interest in the auction. Thus, the bidder also must live the results, since a high bid indicates the perception of strength, but a non-winning bid means the bidder failed to achieve the protections offered by the sale.
Thus, Joff suggests that bidders place their bids anonymously. The problem with that is that two bids are not created equal. For example, the amount a CNS buyer is willing to pay is logically related to its overall exposure, since the alternative, presumably, is litigation. Thus, the more a given company has at stake, the more that company should be willing to pay to avoid the alternative. Further, since Round Rock is presently in litigation, and since the courts are increasingly treating covenants as the functional equivalents of licenses, any actual sales through the auction are likely to be used as data points for damages purposes.
Thus, in the long run, Round Rock may be better off accepting a bid of $1,000,000 from a company like Marvell (approximately 0.03% of last year’s total revenue) may actually be better, in the long run, than accepting four times that amount from a company like Intel (amounting to approximately 0.01% of it’s annual revenue). Without knowing who the bidder is, Round Rock most likely can’t compare the impact that two competing bids might have, and out of an abundance of caution, may just summarily reject any bid (effectively by setting the reserve price well above any expected offers).
As Joff has already noted, a “buy it now” or reserve price has not been made public for this most recent auction, so we’ll all have to tune in tomorrow for an announcement. As for me, I’m not holding my breath.
- UPDATE: Ocean Tomo/Round Rock Patent “Covenant Auction (gametimeip.com)
- Patent Broker Ocean Tomo Auctioning Massive Collection Of Covenants (gametimeip.com)
- Powerful ‘One-Click’ Barcode Technology From NeoMedia Joins ICAP Ocean Tomo’s Spring 2011 Live IP Auction March 31st in New York (prnewswire.com)
- When Is A Billion Dollar Patent Not Worth A Billion Dollars? (gametimeip.com)
- For a Price (Yet Undetermined), Desmarais Will Promise Not to Sue You (blogs.wsj.com)