Week 11 Blog #2: Roadblocks to a Patent Sale

In Ms. Kasznik's presentation, she spoke about the industry trend of a slow-down in patent transactions. Looking further into this trend, I found an article published by Art Monk of TechInsights listing some of the potential hazards preventing the successful sale of a patent portfolio. Hazards include the following:

1. Unknown encumbrances appear during the buyer's due diligence
The discovery of an unknown encumbrance during the buyer's due diligence, particularly if the entities that have major shares in the markets the patents read on, can derail the transaction.

2. Prior art is found that invalidates the key patents
This is a known fact that we have repeated a countless number of times in our course before: any discoveries of prior art during a potential buyer's diligence effort can derail a proposed acquisition. Buyers go to great lengths to ensure that no public disclosures that would have enabled a person skilled in the art to formulate the invention were available at the time the patent was filed. If such disclosures are discovered, then the patents for sale would essentially have no value as they would be invalidated.

3. Chain of title is incomplete
The USPTO records do not show the seller as being the current title holder as there is no requirement under US law to record prior patent assignments so buyers will require this be corrected before a transaction can close.

4. A government entity contributed development funds
If a R&D fund is back by the government, the government may seek a share of the transaction proceeds to recoup its investment additionally insisting on information rights covering the identity of future buyers and their commercialization efforts associated with the patents, factors that could potentially discourage potential buyers from engaging in a deal with the seller.

5. Rights to past damages were not previously transferred
Unless the ability to sue for past damages has been explicitly transferred in all prior assignments, the patents being sold may have no rights to past damages which can come up in the buyer's diligence and if not dealt with, could impair the transaction.

6. Rights of first refusal 
Some sellers enter into agreements to allow a third party the right of first refusal to acquire designated IP assets. This impairs the ability of the seller to market a patent/portfolio because buyers will not invest significant funds into a diligence effort if they know a third party might exercise a right of first refusal and trump their best offer.

7. Inventor attended meetings of a standards body
If inventors attend meetings of a standards-setting organization, inventors must sign an agreement that any patents they file after the meeting that read on the standard will be available to license by third parties on a fair, reasonable, and non-discriminatory basis which can affect the future value of such patents.

All of these scenarios and situations are issues that can slow down the closure of a patent transaction and may explain for the recent trend that Ms. Kasznik presented in Monday's lecture.