Selling Patents: The Enemy of My Enemy is My Friend

When selling patents, it is tempting to think of competitors or direct infringers as the appropriate people who would be interested in your patent. But the truth is there is a much, much larger pool of companies to consider.

I was having lunch with a friend who was chief patent counsel at a company that made cellular phones.  They were embroiled in a lawsuit with another company, and he was lamenting the fact that the litigation was not moving as fast as he would like.

He told me that if I knew of a patent that the other party infringed, he would buy that patent in cash right now.

He needed a negotiating chip, and he did not care if the patent was completely unrelated to his business: he wanted patents that his competitor infringed.

When selling patents, the people who need it are anyone who wants to do business with the infringer.  It may be the infringer’s supplier who can negotiate a better price per unit or exclusivity.  It may be a company suing the infringer.  It may be the infringer’s joint venture partner who can get better terms.  There are countless ways and countless people who could use an infringed patent – and none of them involve lighting up a lawsuit.

The company who buys your patent is not going to be an infringer.

Most inventors think that an infringer is the most likely person to buy their patents. This is not the case.

A patent holder typically looks at their patent as a big bargaining chip that is most valuable to an infringer. They do the math: Big Company would have to pay $100M in royalties if I sued them, so I should be able to get $50M from them with a quick negotiation.

The math never works that way.

Big Company does not look at your patent the same way you do. They see it as an annoyance, a nuisance, that might never be a problem. Most big companies will not respond if you send them an unsolicited email offering to sell your patent to them.

The fact is, they don’t care.

Until, of course, you file a lawsuit in Federal Court.

Once they have a lawsuit in hand, they are forced to take action, and they are most likely to try to kill your patent than try to negotiate. At the beginning, at least, they will put up a fight.

Patent lawsuits are so expensive and so complex that a company with much larger resources is often the winner, as they can grind down their opponent. The bigger company can outspend the smaller company, forcing the smaller company to spend far more money than they have.

It is far cheaper to throw a bunch of money at lawyers and fight against small patent owners than it is to just buy the patent. It may look cheaper to you if they just bought your patent for $2M when it costs them $5M to fight, but the Big Company is playing a longer game.

If Big Company paid $2M to everyone who had a patent that they infringed, everyone with a patent would want to cash out. Big Company fights these lawsuits – even when they are not economically viable – because they cannot afford to have every small inventor assert their patents for an easy payday.

The patent purchaser will be the enemy of the infringer, not the infringer

The most likely purchaser of a patent will be anyone who hates the infringer. You will not sell your patents to the infringer.

The best place to look for buyers for a patent is to find the infringer, then look for any company in a long-running lawsuit with that infringer. The people who value your patent the most will be those companies who are fighting with the infringer.

An infringed patent is a huge negotiating tool for one company who is suing another. By gathering up a few patents that an opponent infringes, a company has an arsenal of tools to clobber their opponent. This makes settlement negotiations much more smooth for the company who owns (or has access to) patents that the other company infringes.

In many cases, litigants can “rent” patents for a specific lawsuit. The rented patents can be enforced (or more correctly, threatened to be enforced) against an opponent as part of a lawsuit. This added weapon might cause the other party to come to the negotiating table earlier, as well as give the patent holder a much stronger position to force a settlement.

When you are looking for buyers for your patents, don’t look at the infringers. Look at anyone who needs a weapon against the infringer.