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It was an unprecedented business experiment. And the expectations for it were sky high. The media attended, as did 400 of the top people in the IP field--including representatives from General Electric Co., Microsoft Corp., E.I. du Pont de Nemours & Co., Siemens AG, Schlumberger Ltd. and BellSouth Corp. They all gathered at San Francisco's Ritz Carlton Hotel to observe or take part in the world's first diversified patent auction.

The 85-minute auction soon ran into trouble, though. One lot after another failed to sell. Apparently, the bids didn't reach the sellers' secret reserve prices. Of the lots that did sell, the vast majority went at bargain-basement prices of $2,000 to $15,000. This didn't leave much margin for sellers' profits, because the legal and administrative costs of obtaining a patent run on average between $2,000 and $15,000.

Ocean Tomo also has learned from watching 52 lots fail to sell because the bids didn't reach the reserve prices. "We are going to work harder to reduce reserves by educating sellers as to what is logical for pricing," Malackowski says.

There was, by the way, a happy ending for some of the companies whose patents failed to sell during the auction. An additional five lots were sold for a total of $5.42 million in post-auction deals Ocean Tomo brokered.

But creating such an IP marketplace won't be easy. It will require businesses to fundamentally rethink their approach toward IP.

"Companies will need to realize that patent acquisition is a viable process," Malackowski says. "We have to teach away from NIH [not invented here] and help IP managers establish and justify budgets for patent acquisition--all long term endeavors."


Steven Seidenberg

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