I was there at Ocean Tomo’s Spring 2008 Live IP Auction, as a last minute assistant to a bidder. My role was to fetch and carry, drive, navigate, hunt for power outlets, obtain lunch, chase Ocean Tomo minions, and generally clear away all the little things that might get in the way of spending a million dollars. It was an experience.
The Auction Layout
Arriving at the Ritz-Carlton, the oddly lax layout immediately struck me as odd. There would be real money being spent, and Ocean Tomo would be keeping 25% of each auction as its take. A throng of black suited, white shirt lawyers shmoozed before being let into the room. They were there to witness an auction; the actual bidders often wore business casual attire. Watchers outnumbered bidders by many to one. Ocean Tomo dove-tailed their IP Strategy conference to the auction and invited all the conference attendees.
The thronged room included several strange little booths pimping specific patents and lots. Inventors were often on hand with little binders of information. News clips alleging greatness and multiple infringers were blown up for even the poorest eyesight. Little dishes of chocolate were available. All this was standard for a high value auction, but all wrong. The booths should be pimping for the next auction, not this one.
Patent auctions are not like auctions for artwork, automobiles, or fancy jewelery: there are no impulse purchases. Valuation, the guessing at a patent’s value, take time. After about forty hours of patent attorney time, reports from outside search firms, and understanding what engineering details could be worked around, then one can make fuzzy guess of the strength of the patent in litigation and a rough number for value generated. Also, Ocean Tomo requires you to specify what lots you are bidding on in advance and see some guarantees that you can pay your bid. Even the crazed executive could not impulse buy.
The Auction Itself
The auction was managed by an auctioneer, surprise! The auction process was never quite clear and evolved during use. Somewhere in the middle, the auctioneer started using the “going once, going twice, gone” model well known to everyone. Still, there were oddities. Starting prices were strange and somewhat random and would be reduced if there was no bid at that price. About half of the auctions sold to a sole bidder. There were hidden reserve amounts below which the lot would not be sold: one lot bid up to $700,000 and was below reserve. There was at least one “after gavel absentee bid” which was announced only after the gavel signaled the end of bidding and then opened up bidding again. Of more concern was the bidding on ‘our’ lot.
We were at the back of the room when the lot came up. We ended up bidding against two other bidders in ever increasing amounts. Several of the intermediate bids were off a bit: raises of $25,000 taken as raises of $10,000; a sign for “more time please” taken as a raise for $10,000. The final bid was heard correctly after being repeated, so no harm done.
There was a slightly slimy feel to all the gawkers. We had one person who moved behind us to try to puzzle out who we represented and tried asking when that failed. Anonymity had been promised, though no one stopped the press guy taking photos through the auction. I got the impression that most experienced bidders used the phone bank. They had people on platforms who would call registered buyers just before the lot came up, rely the bidding to them and correctly relay bids back to auctioneer.
Some lots traded for a millions. Several lots couldn’t get the minimum bid of $10,000: junk patents are not worth much. This auction seemed to favor computer hardware and software patents with less interest in materials and power technology.
Planning to Buy A Patent?
I have three pieces of advice if you plan to buy a patent at auction…
First, plan on time to evaluate the patent. It will take about two weeks and $30,000 to get ready. It will take a day or two getting your accounting department enough money to your intermediary. It will take a night’s sleep to decide if your decision is correct.
Second, use an intermediary. Have an agent or your outside counsel actually register and bid. You *really* do not want anyone to know you bid on a patent and failed to acquire it. It is worth the hassle to provide a back-up to the confidentiality policy of Ocean Tomo
Finally, bid on the phone. Being there in person makes you possible to recognize, makes it harder to bid correctly, and forgoes the option of a group sitting around a comfortable conference room table making the best decisions.
It was Fun
It was a fun day. I got to be an unpaid gopher and observer without stress. I gained an experience point: my expected behavior for buying or selling patents at auction changed. And I got to take home a bidding paddle used to spend over a million dollars. According to QFM, someone might be very interested in this paddle. I wonder what it’s worth on Ebay?
