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Selling patents to survive economic hard times

Photonics Spectra
Apr 2009
“By any means necessary” is the mindset for some businesses these days, as what they aimed to do from the beginning is now being put on hold.

Amanda D. Francoeur, amanda.francoeur@laurin.com

More and more businesses are struggling to stay ahead of the failing economy. Even high-tech and small starter companies have not been spared from its overwhelming impact on revenue as they are forced to sell patents they have filed rather than file for more. It’s the only way to stay in business as the economic crisis bears down.

Turning a profit

VocalTec Communications Ltd., a worldwide carrier-class multimedia service and voice-over-Internet Protocol technology provider based in Herzliya, Israel, had to sell 15 of its 22 patents to raise money to market its telecom solutions. The company, which took in revenue of $5.8 million in 2007, had a $5.6 million, or 75 cents per share, net loss for fiscal 2008.

PTTipforMoney_illustration.jpgIdo Gur agreed to be the company’s chief executive officer only if it sold all of its consumer phone patents and focused on sales with clients such as Deutsche Telekom AG, a telecommunications and information technology service provider. In doing so, the profits from patent sales brought in a total of $15.4 million. The company is planning to use the money to expand its work force and improve its research and marketing strategies.

In Costa Mesa, Calif., Irvine Sensors Corp., a vision systems developer and manufacturer of infrared and electro-optical cameras used by the military, also is selling its patents or taking into account any sale of rights to keep up with the economic downturn. Its revenue for fiscal 2008 was $16.7 million, compared with $20.4 million for fiscal 2007. The company also reported a net loss of $22 million last year.

Irvine sold many of its systems, sensors and electronic packaging technology patents to Aprolase Development Co. for $9.5 million. The agreement stipulated that Aprolase would license back the patents to Irvine Sensors and make them royalty-free for worldwide use. In addition, Irvine sold a chip-stacking license to IBM Corp.

Selling intellectual property has not necessarily been a bad thing for these companies, as many have been able to turn a profit by selling some they did not need. In addition, many investors buying patents are agreeing to back-licensing terms that let the companies that sold the patents continue to use the technology without fees or fear of infringement. However, businesses should be especially aware of venture capitalists because they have the tendency to take advantage of intellectual property sales, offering much lower proceeds for high-value patents.



The other side of sales

Companies such as Ocean Tomo Federal Services LLC, a merchant bank based in Chicago that executes patent transactions, are being positively affected by the downturn as technology corporations look for intellectual property (IP) sales outlets. Ocean Tomo had revenue of $30 million in 2008 and is expecting that to increase by 25 percent this year. It has turned a considerable profit on patent sales because of a demand for intellectual property appraisals, live public auctions, Patent/Bid-Ask™, private brokerage and other IP services it provides.

Because businesses are carefully watching their expenses, Ocean Tomo recently included a recovery and restructuring practice that would help companies with IP management, along with a fixed fee structure for patent infringement lawsuits.

Iceberg Transactions Ltd. of London has executed many IP sales for the US and has seen an increase specifically by high-tech corporations. Patent sales have ranged from several hundred thousand to more than several million dollars. The company scrutinizes a patent portfolio and distinctly recognizes an IP investor that would bring about the most profitable outcome.


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