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How to sell an unused patent

08. december 2016

So, you have patent rights in your drawer that you are not going to use in the future? Here are useful tips in case you are considering a sale.

Patents are assets like cars, machines and factories, and they represent a value. As times change, commercial interests shift, and this may make it beneficial to acquire new factories, scrap machines, or stop utilising a patent. When a machine is put out of use, it can be scrapped or sold. Likewise, it may become relevant to give up a patent. In this case, it is useful to stop for a minute and consider whether the patent should merely be abandoned, or whether it could realise some value by being sold. Even though it no longer represents sufficient value for you to warrant keeping, this might not apply for others.

Plenty of granted patents are not in use. A study conducted on behalf of the European Commission (Gambardella et al. 2008) found that an estimated third of the granted European patents are not utilised commercially. Ideally, many of these patents should perhaps be sold off. Further, this number does not include patents already lapsed due to lack of commercial interest, which might also have been attempted sold instead of lapsing.

Situations, where it may become relevant to consider selling a patent right or application, may occur at any time throughout its lifetime and for a variety of reasons, such as your strategic direction changing, or if you stop producing the relevant product. This may leave the patent right unused in your hands. Alternatively, during the lifetime of the patent, the technology has become more valuable in a different field or for someone else, where a sale may then monetise part of this difference.

What to consider before a sale
Assuming, you are curious to see if you may sell that patent right, what are you supposed to consider and ultimately do?

An important and difficult step is assessing the value of the patent. How do you ensure that you have chosen an attractive price, that buyers know that the price is attractive, and that you are achieving as much from the sale as possible? In itself, assessing the value is quite a task, and one where Chas. Hude also can assist.

Regarding assessment of the value, sellers and inventors of patents tend to overestimate the value of their rights. It is dangerous to set the initial price too high, because the prospective buyers will be reluctant to engage in negotiations when they are unsure of their ability to achieve a mutually satisfactory price since there is so much work involved in the negotiations and the due diligence this requires. The price should not be too low either. You can allow yourself some wiggle room in negotiations by setting the price slightly higher than you are ultimately willing to sell at, but it should be realistic in the eyes of a buyer.

What characterises the good sale?
You have a patent right sitting in your drawer unused, or maybe you consider abandoning a granted patent or a patent application. Selling the (prospective) right may be a useful strategy since it represents a value like everything else you have bought in your business, and this value you can monetise.

The big issue when selling intangible assets is the complexity of the right. Therefore, an important step in selling patents is to make the process as easy and appetising as possible for prospective buyers.

This may be done in a variety of ways.

Identify and contact stakeholders. The parties, whom the patent right may concern, are important for the sales process. Some may constitute prospective buyers, others prospective infringers, and some both. Contact the prospective buyers and suggest setting up a channel of communication for the negotiations. Depending on the relationship between you and the individual stakeholder, this is a task that should be mediated by a third party, like Chas. Hude.

Prospective buyers may want to gain the sole right to the technology, or they may want to prevent others from getting the sole right. In other words, it may be established firms seeking to market a new product or wanting to prevent the entry of a new product as well as new entrants on the market looking for a unique key selling point to leverage this entry.

Set a fair price. This is crucial and already mentioned above: Uncertainty of being able to negotiate a realistic price makes prospective buyers reluctant to engage in a sale in the first place. Further, buying a patent requires considerable time and resources to evaluate the strength of the patent in terms of extent of protection offered by the invention in question and in case of litigation.

Sell entire technologies. The prospect of selling increases if an entire technology is for sale, meaning a portfolio covering the same product and/or process. Seen from the buyer’s point of view, it makes sense to buy ‘the whole package’, both for ease of transition, if the deal includes a sort of training period, and for increasing litigation power significantly.

Further, there are certain aspects of the sale which a seller should understand about the sales process beforehand:

Be patient. Selling a patent is a lot of contractual work, risk-taking from both sides, and negotiation, all of which must be performed simultaneously with other obligations. As an introduction to the patent, making a quick overview of the rights and the technology may make prospective buyers realise the value of the patent. Later, during negotiations, expecting to hand the patent off as a commodity is going to leave you frustrated. Instead, help the buyer receive all the relevant information as quickly as possible, such as proof of clean title and wrapper of the file history, and perhaps also lending a helping hand. This will smooth the process along nicely.

License. Be clear on your subsequent relationship with the technology. Are you still using it? Then arrange a license agreement.

Use a mediator. In some jurisdictions, a wilful infringement of a patent is a more severe crime than an infringement under good faith. For these jurisdictions, contacting prospective buyers with a patent right that they may be infringing, regardless of the fact that this communication concerns the sale of the prospective patent, will require the party to acknowledge their knowledge of the patent. This in turn, can be used against them in litigation. Therefore, prospective buyers may be reluctant to acknowledge receipt of communications. Instead, mediators acting discretely should be used.

At Chas. Hude A/S, we are committed to helping you with your patents, including selling dusty rights sitting in your drawers. While selling patents is tricky business, it is a natural part of a holistic IP-strategy, and it is useful to monetise otherwise dormant technologies as the competitive and technological landscape changes over time.

For further reading on the value of European patents, see: Gambardella, A., Harhoff, D. and Verspagen, B., 2008. The value of European patents. European Management Review, 5(2), pp.69-84.