Oceantomo Patent & IP auction in New York

I attended the OceanTomo patent and intellectual property auction last week in New York (October 24-25, 2006). I want to share my insights and thoughts regarding the patent and IP auction.

First, I thought that the patent auction was very well managed and administered. The OceanTomo staff was professional, organized, and chose a fantastic location for the auction in the heart of New York City. The auction was held in a beautiful old bank building called The Capitale, now converted into a meeting place.

That being said, I have a few thoughts about the viability of the live auction format for intellectual property, and ways to strengthen the concept further.

First, there needs to be a better valuation methodology. One of the seminars was led by Jonathan Barney, a former patent attorney at Knobbe Martin Olsen & Bear, and creator of the Patent Ratings methodology used by OceanTomo. OceanTomo's methodology is based on objectively assessing and weighing various factors in the trove of issued U.S. patents which provide an indication of whether the patents will be maintained by the patent owner through payment of maintenance fees.

The theory is simple : By understanding what factors increase the likelihood that a patent will be maintained, means that it is more valuable to a company. If it is more valuable to a company, it must be more valuable. This metric is tracked through a Patent Quality ranking assessed by OceanTomo.

However, this ranking does not adequately capture the value or quality of a particular patent. The entire concepts of “value” of a patent and “quality” of a patent need better definitions. Value is a fair market value of an intellectual property asset. Quality should be defined as the skill of the attorney/drafter/author of the intellectual property asset in conformance with litigation-precedent verified best practices.

The Oceantomo approach seems to merge the concepts of “value” and “quality” in the Patent Ratings methodology. This methodology merely indicates whether on not a patent attorney or licensing executive in a corporation is likely to keep a patent alive or not. Factors such as (1) length of a specification (2) the number of independent and dependent claims (3) the number of figures (4) number of continuations increase the Patent Quality score by OceanTomo. However, these metrics have nothing to do with actual quality or value of a patent in my view.

The quality of a patent should be determined by factors such as how elements in the claims are defined in the specification, whether the application is supported in the specification, what has been the impact of prosecution history estoppel (e.g., admissions by the application), and whether best practices for patent application drafting were followed. None of these factors seem to be directly considered in the OceanTomo patent ranking. Rather, the OceanTomo patent ranking only predicts the likelihood a company will keep a patent alive or not. As such, it does not adequately measure quality of a patent.

Furthermore, value should be determined through a modified version of the market approach, income approach, or cost approach. None of these three standard valuation methodologies work well for patents because a poorly drafted patent might be still worth nothing if it will later be invalidated because of poor drafting quality.

What methodology is best? I’m writing a paper on this, I’ll publish it here by early January 2007.