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‘Banks’ Popping Up to Handle The Buying, Selling of Patents

When Santa Clara-based telecommunications software firm LongBoard became saddled with debt after a $5 million bridge loan coupled with lackluster revenues, it began winding down operations.

Then, along came two unsolicited offers for $1.5 million each from potential buyers interested in its intellectual property.

The buyers saw potential in its technology that enables telecommunications businesses to provide the same features that phone customers have come to expect with common telephone service, such as voice mail, call forwarding and conference calling.

Realizing the potential value remaining in the company, investor Carl Eibl with Enterprise Partners Venture Capital in La Jolla suggested that the firm contact an IP investment bank to see if it might attract even more bidders.

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It called San Mateo-based patent bank IPotential to see if it would be interested, but eventually, LongBoard came away with $5.4 million.

As the marketplace grows for patents, lawyers are leaving their firms to set up shops that handle the selling and buying of patents.

Patent brokerage firms act much like a real estate broker for buyers and sellers of intellectual property. The biggest buyers in the market are oftentimes nonoperational entities, sometimes called “patent trolls,” seeking to buy IP without using it, for a chance to sue others for infringement.

Others are businesses looking to buy up patents beyond the scope of what’s necessary to protect them against competitors in patent lawsuits.

“Before 2003, there really weren’t many companies doing this and now there’s several,” said Michael Pierantozzi, vice president of business development for IPotential.


33% Increase In Transactions

Co-founded by former Intel lawyer Ron Epstein, the firm has sold 130 patents worth $265 million in its five years in business, according to Pierantozzi. Last year, it saw a 33 percent increase in transactions compared with 2007.

Its clients run the gamut from small inventors to giants such as Motorola. Earlier in the decade, it sold the IP portfolio of Legerity, a struggling Advanced Micro Devices spinoff, to Altitude Capital Partners.

“Most companies fail not because they have bad technology, but typically for some other reason,” said Francis Rushford, a patent attorney-turned-broker who helped build Icap’s patent brokerage two years ago. “And they end up with some very good technology they can’t leverage as a business.”

At Icap’s La Jolla headquarters, three brokers deal in a variety of businesses looking to shed or gain certain intellectual property assets. Among their clients are makers of semiconductors, telecommunications firms, pharmacology companies and high-tech businesses.

“Everybody is looking to buy patents that have value,” Rushford said. “They’re looking to protect their marketplace.”


Investment Banks

Many veteran patent attorneys such as Rushford have left their local law firms to build IP investment banks that buy and sell patents and advise companies looking to license their IP.

As the number of bankruptcies among businesses increases in a volatile economy, many of them have the necessary expertise to recognize the value of a company’s IP. Creditors often seek them out to help pay back their original investments, according to Rushford.

Likewise, many companies looking to divest IP assets that are no longer an essential part of the business, or acquired through a merger or acquisition, also seek their assistance.

“With the economy down, we are seeing an increase across the board in technologies and companies shedding portfolios to generate cash,” said John Scherling, patent attorney in the San Diego office of Sughrue Mion.

Scherling, who represents clients involved in patent lawsuits, says his firm has noticed an uptick in calls seeking information about a patent’s worth.

“Frequently, companies already know who is interested in their IP,” he said.

But for those that don’t, executives with local IP brokerages say they’re filling the void.

“Not every company can afford that luxury to have all that expertise in-house,” Pierantozzi said.

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