Yet2com Blog

This is a reprint from an excellent article from the Boston Business Journal.  I’d add one caveat – we are seeing a flight to quality patents.  Last year a patent which sold for $25K, might not have a buyer this year.  But a patent which had a buyer for $500K, might draw $1M today – Ben

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By the time nTag Interactive Corp. filed for bankruptcy it had raised $23 million in venture capital and owed about $2.5 million to creditors.

That’s a bit more than the $25,000 the Boston-based company, which made interactive name tags for events, was offered for use of its technology, according to a recent court filing.

It’s a sobering scenario that could become more common as startups stressed by the recession file for bankruptcy or simply shut down. Local lawyers, investors and intellectual property brokers expect more IP to be put up for sale as funding sources become more scarce.

“We’re seeing a doubling, if not more, of people coming in and saying we have patents we would like to sell,” said Phil Stern, CEO of Yet2.com Inc. The Needham-based company, which has about 20 employees, helps companies find buyers for their IP.

Stern said much of the IP being unloaded comes from companies looking to generate capital to keep going in tough times or by companies that are shutting down altogether.

“A tremendous amount of IP is now on the market,” he said.

In cases where a startup files for liquidation, what happens to the company’s IP holdings is more cut and dried, area IP attorneys said. In those situations a trustee is appointed to sell the assets of company, and patents are sold just as office furniture might be.

In liquidations the idea is to try to pay back secure creditors with money generated by selling assets such as IP. Typically private investors are not secure creditors unless they have made bridge loans to the startup, said Gene T. Barton, a principal at law firm Fish & Richardson PC in Boston.

But Barton said that bankruptcies only represent a small percentage of startup shutdowns and the investors typically try to sell off the assets of the company quietly.

Some IP may get picked up by competitors of a company and some might get bought by acquirers hoping to sue other companies that might infringe on those patents, said William “Wilber” James, managing general partner of Boston-based RockPort Capital Partners.

It’s rare, however, that selling IP recovers much of the losses investors face when a company fails, experts said.

“Technology in itself isn’t worth very much. The business plan is what’s valuable,” James said.

The option of holding on to patents is rarely worth it since the legal costs of maintaining them can run high, said Michael Greeley, a general partner at Boston-based Flybridge Capital Partners. “It aggregates. It’s many hundreds of thousands of dollars. In life sciences it could be millions of dollars,” he said.

One certain thing, experts said, is that as more companies face troubles they’ll try to unload patents. That’s having an impact already on the prices IP owners can command, Stern said.

“Pricing has probably come down on a per-patent basis,” he said.

This entry was posted on Tuesday, November 3rd, 2009 at 7:59 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.