Moving patents to higher-valued uses

Buyers come in all flavors, both strategic and financial:

...Of the financial ones, some hope to profit from the market’s relative youth and illiquidity, seeking out undervalued patents and taking advantage of pricing inefficiencies (and the difficulty of valuing such a complex asset) to sell them at a hefty mark-up.

Others are longer-term holders, pejoratively referred to as “patent trolls”, who are looking for an income stream from collecting royalties. Ugly they may be to those they harass, but lazy they are not. Such investors typically undertake exhaustive analysis of the relevant technologies and the firms that may be using them. Negotiations with those they deem to have breached a patent can be tortuous. Even by the standards of alternative investors, this is esoteric stuff. But the returns can be handsome and, with a broad enough portfolio, fairly predictable.

As the market evolves, its supporting infrastructure grows more sophisticated. New brokers are popping up. Like estate agents, they package together information—on the patent’s validity, infringement by others and so on—and try to maximise proceeds for clients. iPotential has helped some clients get more than ten times the initial asking price. ICAP Ocean Tomo, another broker, began running patent auctions in 2006, and this year an affiliate set up an IP exchange. Its index of patent-rich shares is tracked by several exchange-traded funds. IP is moving out of the lab and into the financial mainstream.