Patent Auctions

History

• Ocean Tomo LLC pioneered live in-person patent auctions beginning in 2006
• Live auctions were held in San Francisco, Chicago, and New York
• Bidders registered, received catalogs of patents, reviewed claim charts, and bid at a live event like an art auction
• Live auctions have largely been replaced by sealed-bid and online processes

Current Platforms

• (a) RICHARDSON OLIVER: now one of the leading patent transaction advisors
• Runs structured sealed-bid processes for large portfolios
• Tracks transaction data and publishes market reports
• (b) HILCO STREAMBANK (IP Division): specializes in bankruptcy and distressed IP sales
• Manages complex court-supervised sales processes
• Also handles operating company divestitures
• (c) OCEAN TOMO (restructured): pivoted from live auctions to brokerage and analytics
• (d) IPAUCTIONS.COM and similar platforms: online listing and bidding platforms for smaller patent transactions
• Variable quality and activity
• (e) DIRECT NEGOTIATED SALES: many patent 'auctions' today are simply competitive bid processes managed by a broker without a formal auction platform
• The broker solicits bids from multiple buyers by a deadline and the seller accepts the highest bid (or negotiates)

How a Sealed-bid Auction Works

• (1) seller (or broker) prepares patent catalog with claim charts and due diligence materials
• (2) interested buyers register and sign NDA
• (3) buyers receive full due diligence package
• (4) buyer bids submitted by deadline (sealed — other bidders don't know what you bid)
• (5) seller reviews bids, may conduct a second round for top bidders, selects winner
• (6) LOI executed
• (7) assignment and closing.

Well-suited for Auction

• (a) BROAD HORIZONTAL TECHNOLOGY: patents covering widely used technology with many potential infringers across industries (e.g., Wi-Fi, Bluetooth, data compression, authentication) — many bidders compete because many buyers could use the patents defensively or offensively
• (b) WELL-MAPPED PATENTS: patents with existing claim charts showing clear infringement theories are ready-to-use and attract aggressive bids
• (c) DISTRESSED ASSETS: bankrupt companies, failed startups, or companies that need to liquidate quickly use auctions to establish a price without months-long negotiations
• Court-supervised bankruptcy sales often use auction processes to satisfy fiduciary duty to creditors
• (d) LARGE PORTFOLIOS WITH MULTIPLE ASSETS: a portfolio auction lets different bidders acquire different patent families based on their specific coverage needs

Less Suited for Auction

• (a) HIGHLY SPECIALIZED TECHNOLOGY: patents in narrow fields with only one or two potential buyers rarely attract competitive bids
• A bilateral negotiation with the specific buyer extracts more value
• (b) COMPLEX ENCUMBRANCES: patents with numerous licenses, FRAND commitments, or other encumbrances require extensive due diligence and customized deal structures — not auction-friendly
• (c) EARLY-STAGE RESEARCH PATENTS: patents that cover theoretical approaches not yet in commercial products may not attract bidders willing to pay for uncertain future value
• (d) PATENTS NEAR EXPIRATION: patents with fewer than 3 years remaining have limited licensing or enforcement value

Auction Reserve Prices

• Sellers set reserve prices (minimum acceptable bids)
• If bidding doesn't reach the reserve, the patent doesn't sell
• Setting the reserve too high kills the deal
• Too low leaves money on the table.

Due Diligence Process for Auction Buyers

• (a) CLAIM REVIEW: read the independent claims carefully
• Determine what is actually claimed vs. what is described in the specification
• Map claims to the technology in your products or competitors' products
• (b) PROSECUTION HISTORY: review the file wrapper for key amendments and arguments
• Amendments that narrowed claims create prosecution history estoppel
• Broad prior art arguments create prosecution disclaimers
• (c) PRIOR ART SEARCH: search for invalidating prior art
• You need to know the validity risk before you can value the patent
• USPTO Patent Full-Text Database
• Google Patents
• EPO Espacenet
• (d) TITLE CHAIN: verify the chain of assignment from all inventors to the current seller
• Gaps in the chain create fatal defects
• Search the USPTO assignments database
• (e) ENCUMBRANCE REVIEW: check for existing licenses, covenants not to sue, standards body commitments
• These limit who you can assert against
• (f) FOREIGN COUNTERPARTS: identify PCT and foreign applications/patents
• International protection often adds significant value

Bidding Strategy

• (a) understand WHY you want the patent: defensive (protect your own products from a competitor asserting it against you)
• Offensive (licensing or litigation against competitors)
• Portfolio building (filling coverage gaps)
• (b) calculate your maximum willingness to pay based on use case
• Defensive value = cost of being sued + litigation cost avoidance
• Offensive value = projected licensing revenue discounted to present value
• (c) bid based on value to you — not on speculation about what others will bid
• (d) remember: the 'winner's curse' — in auctions, the winner often pays more than the asset is worth because they were the most optimistic about its value.

11 U.s.c. § 363

• Bankruptcy trustee or debtor-in-possession can sell assets outside the ordinary course of business with court approval
• § 363 sales are the primary mechanism for patent portfolio sales in bankruptcy

Bidding Procedures Order

• The bankruptcy court approves a 'bidding procedures order' that sets: (a) the stalking horse bid (a pre-negotiated baseline bid from an initial buyer that sets the floor for the auction)
• (b) minimum overbid increment
• (c) break-up fee (paid to the stalking horse bidder if they lose)
• (d) bid deadline
• (e) auction date
• (f) sale hearing date

The Stalking Horse

• The stalking horse bidder agrees to a price upfront, typically in exchange for: (a) break-up fee (1-3% of transaction value) if they lose the auction
• (b) expense reimbursement
• (c) exclusivity to negotiate the PSA before the auction
• The stalking horse sets the floor but faces competition at auction

Auction Process

• Auctions are typically conducted by the debtor's investment banker or a licensed auctioneer in a conference room
• Each qualified bidder submits successively higher bids
• After auction, the court approves the 'highest and best' bid at a sale hearing
• Objections can be filed before the sale hearing

Good Faith Purchaser Protection

• § 363(m): courts can protect a good faith buyer if the sale order is later challenged on appeal — even if the order is reversed, the sale may stand if the buyer acted in good faith
• Critical protection for buyers

Pre-close Due Diligence Checklist

• (a) TITLE CONFIRMATION: re-run the USPTO assignment search for all patents in the portfolio
• Confirm no assignments were recorded after your auction due diligence date
• Verify inventor assignments are executed and recorded
• (b) PROSECUTION HISTORY REVIEW: for each key patent, review the complete file wrapper
• Confirm claim constructions match your pre-bid analysis
• Identify any office actions or interview summaries that narrow claim scope
• (c) MAINTENANCE FEE STATUS: confirm all maintenance fees are current
• USPTO maintenance fee database
• Missing a maintenance fee deadline causes the patent to expire
• (d) ENCUMBRANCE CONFIRMATION: review all license agreements in the seller's data room
• Confirm FRAND commitments (if any) match representations
• Check for any consent-to-assignment requirements in existing licenses
• (e) FOREIGN COUNTERPART REVIEW: identify all international applications and patents in the same families
• Confirm national phase entries are timely
• (f) LITIGATION HISTORY: search PACER for any pending or prior litigation involving the patents
• Review any settlement agreements that created licenses
• (g) REPRESENTATIONS AND WARRANTIES: negotiate reps and warranties in the assignment agreement covering: clean title
• No known adverse claims
• Validity representations (or lack thereof)
• Accuracy of disclosed encumbrances

Note on Timing

• Buyers closing a § 363 bankruptcy sale should move quickly — court timelines are rigid and delays can require additional court approval
• Typical time from winning bid to closing in bankruptcy: 2-4 weeks

Assignment Recording

• Record the assignment at the USPTO promptly after closing (within 3 months)
• Recording provides constructive notice and protects against subsequent purchasers.