It has been the practice of most patent brokers to require exclusive representation when they agree to represent a patent, patent application, patent family, or patent portfolio owner in the monetization of his or her or its patent assets.
Exclusive representation is not a unique concept. It is a common practice in the real estate sector to engage real estate agents on an exclusive basis. Most business brokers also require exclusivity. And there are a few reasons why.
Let’s start with the patent or patents in the transaction. A patent does not have an infinite number of potential buyers or licensees. In fact, most patents have a fairly limited number of potential buyers or licensees. While many patent owners have visions of hundreds of buyers dancing in their heads, that is simply not the case. A patent for a gas grill is only going to be of interest to gas grill manufacturers – as just one example – and there are about 30 of them. An apparel, consumer electronics, auto and truck, warehouse shelving, and replacement window manufacturer – as just a few examples – are simply NOT going to be interested in the next generation of gas grills.
The significance of this is that if we permitted a client to engage another patent broker to represent him or her or it, that broker would end up contacting the same companies that IPOfferings would. Maybe not exactly the same identical list of companies, but the two lists would be at least 80 or 90% duplicate.
And when a company that is interested in your patent realizes that you are represented by two brokers, it knows exactly what to do. It informs both brokers that the one that can get it the lowest price for the patent gets the deal. You end up with a reverse auction and a race to zero.
Yes, as the owner of the patent(s) your broker cannot sell your patent(s) out from under you, but what do you do when each offer that comes in for the patent is lower than the previous offer?
The smart strategy is to find a patent broker that understands the technology behind your patent, and has a comprehensive plan. Give that broker exclusivity, but only for a limited period. We suggest one year. If the broker cannot make satisfactory progress in one year, terminate the agreement and move on.
Having two brokers representing you is like operating on the premise that rather than waiting nine months for a baby, use two woman and you’ll have that baby in just four-and-a-half months. It just doesn’t work that way. Two brokers will essentially duplicate each other’s activities. Not speed up the process.
While we are on the topic of patent brokerage, let’s also address carve outs. There are some clients who want to “carve out” a list of prospective buyers whom the broker cannot contact and cannot, therefore, negotiate a sale or license and earn a fee for doing so. The patent owner is convinced that he or she or it can sell directly to a few key companies – sometimes several key companies – so why pay a fee to the broker for a sale or license that he or she can generate independent of the broker.
This belief often begins because the patent owner once spoke to an executive of Company A, so why not just call that person up and close the deal? The reality is that if Company A has not already inquired about your patent(s) and made an offer, there is NO interest there. The other issue is that the patent owner is often speaking to a person at Company A who has nothing to do with IP acquisitions.
Carving out one or more prospective buyers from your broker’s area of coverage is the ultimate example of “Penny Wise and Pound Foolish.” It seems like Ben Franklin ought to been the source of this adage, but it is actually the Oxford scholar Robert Burton, and it goes all the way back to 1621.
Think about what the patent owner is doing. In an attempt to save a few dollars (the broker’s fee), he or she carves out one or more prospective buyers or licensees. What is the better outcome? You successfully monetize your patent(s) and you pay the broker its fee. Or…you save that fee, but you also fail to successfully monetize your patent(s)?
When you engage a patent broker, give the broker free reign. And consider using the patent to receive patent valuation. So, you end up paying a fee. You are still net ahead.
