Selling patents

The best way to sell patents is to create a family of commercially useful patents. These should be hard to design around and legally strong.  Know your market!

Your patents are best used to help you attract funding and to protect your products from copycats. But sometimes this isn’t feasible. Thus occasionally, alternative patent monetization approaches, such as sales, licensing, or litigation; may be a potential alternative. Here I discuss selling patents in a non-litigation context. I discuss licensing and litigation in other articles.

Your patents need to have good commercial potential, or else the game stops right here. The considerations include potential market size, market share, and value added by the patents.  Your patents need to be “strong,” This means, not easily invalidated on the basis of prior art. They also can’t have a lot of loopholes.

To understand selling patents, consider the subject from the standpoint of a potential corporate purchaser. With the exception of “blocking patents” (which are relatively rare), for any given single patent, the corporate technologists will usually say “no problem, we can design around it.” The corporate legal counsel will usually say, “no problem, we will come up with non-infringement/invalidity arguments”. Given this “no problem” input, if there is only one patent, the corporate decision-maker will often decide to “risk it.” If so, there will be no sale.

By contrast, when the corporate purchaser considers multiple patents, the assurances of the technologists and legal counsel decrease.  Technologist assurances that “we can design around it” become more guarded. Legal counsel will realize that they will have to challenge multiple patents. They will add up the potential costs and risks of multiple potential court cases, and be less reassuring.  This is why most patent sales take place in the context of a family of related patents.

Patent valuation, and comparables:

You might want to put your pinky in your mouth and say “one hundred billion dollars.” But you should also consider market realities.  Remember there are real estate “comps” (average selling prices of houses in a neighborhood) and real estate valuation schemes. Similarly, there are “patent comps” and various techniques to measure patent valuation. Corporate purchasers, for example, have to justify their expenses to their upper management or their board of directors.  This justification becomes harder as the patent price moves outside of typical comps and valuation schemes. So it is important to be aware of these comps and valuation schemes. Set your expectations and negotiating strategies accordingly.

Selling methods: There are various methods of selling patents, including direct corporate deals (the traditional method). Online auction sales, sales using brokers, and sales to NPE (non-practicing entities) are less common. As in any financial transaction, it is helpful to try to position yourself to negotiate from a position of strength. You should have the financial means to walk away from bad deals. You should also approach the transaction in an informed manner.