Are intellectual property auctions a viable alternative for IP buyers and sellers? Here’s the lowdown on a unique phenomenon that has already accounted for millions of dollars worth of IP transactions.

Traditionally, intellectual property sales have taken place as lengthy private transactions through expensive intermediaries like brokers and attorneys.  As a result, sellers of intellectual property have had difficulties paying the high attorney fees, reaching potential buyers, and maximizing the sale price of the intellectual property.  Because of the covertness of the transaction, buyers often learn about IP acquisition opportunities after the sale has already taken place.

But the new solution that's growing in popularity is the intellectual property auction, which allows sellers to list patents, patent applications, trademarks, domain names, and copyrighted materials for bidding.  Internet-based auction sites, such as IpAuctions.com and Free Patent Auction, have existed since 2002 and 2004, respectively.  Ideal for individual inventors and buyers due to the low cost of posting a listing, online auctions allow for quicker, simpler transactions.  For serious IP portfolio-building, however, Internet-based auctions don’t have the quality IP lots, publicity, and access to buyers and sellers that larger corporations need.

Live IP auctions, though a relatively new phenomena, are a rapidly growing market for IP transactions.  In the first-ever live IP auction, held by Ocean Tomo in April 2006 in San Francisco, 26 of the 78 featured lots were sold on the auction floor with an additional five lots sold post-auction. Total sales – over $8 million.  Two years later, at Ocean Tomo's April 2008 live IP auction held again in San Francisco, cumulative sales topped $19.6 million. Lot 25, an IP portfolio related to digital data processing, sold for $6.6 million and set a new world record for a patent lot at a multi-lot live IP auction.

What made the live IP Auction so successful?  The live auction created a public forum for the transparent exchange of intellectual property assets.  Sellers benefit from the press exposure, the competitive bidding atmosphere and urgency of the sale, and the ability to control auction conditions such as the reserve price.  Buyers have equal, informed access to IP acquisition opportunities while maintaining confidentiality and anonymity. 

Live IP auctions have taken place in the United States and Europe.  While the US auctions have been consistently successful from the start, the auctions in Europe have had mixed results.  The first European IP Auction, organized in May 2007 in Munich by IP Auctions GmbH, fell far below expectations, with a transaction rate of only 30% and cumulative sales of just €500,000. This was a huge disappointment considering that the 83 lots offered had a minimum value of over €5 million. 

However, the lackluster sales were the result of poor planning decisions, such as not providing enough time for potential buyers to perform "due diligence" checks.  The success of the second European IP Auction, organized June 2007 in London by Ocean Tomo, confirmed that there is a European market for live IP auctions.  Another Ocean Tomo live IP auction was recently on June 25-26 in Amsterdam in conjunction with the IAM CIPO Summit as part of the IP Business Congress.

Ocean Tomo also has plans to host live IP auctions in Asia. 

How does one go about participating in a live IP auction?  Firstly, not all types of intellectual property are appropriate for auction.  The most popular patents in demand are for digital media systems, security, and software. Since auctions lack the due diligence done around a private patent sale, it is important for sellers to have their IP portfolio accurately valued before the auction. 

The sellers at a live IP auction range from large corporations, to mid-size and small companies, to individual inventors. Sellers can expect to pay $1,000-$6,000 in listing fees depending on the number of patents, trademarks, copyrights, or domain names being listed, as well as a 15% seller's premium on the final price.  Bidders pay the registration fee plus a 10% commission price on the final price of an IP lot.  Buyers need not be present to bid; bids can be placed by proxy or telephone.

Yes, live IP auctions are a much riskier means of acquiring IP rights than private transactions.  Without due diligence, the responsibility of assessing the value of an IP lot is placed on the potential buyer.  However, the recent popularity of live IP auctions demonstrates that there is a viable marketplace for this method of selling IP.