How do you sell a patent, a practical seller checklist

Start by defining the asset. A sale can cover a single patent, a family (the patent plus its continuations, divisionals and foreign counterparts), a pending application, or a portfolio. Buyers usually prefer families over isolated patents, because continuations allow claims to be adjusted to the products in the market, and foreign counterparts extend coverage beyond the United States. If you hold related patents tied together by terminal disclaimers, selling them separately can damage enforceability, since a terminal disclaimer typically requires common ownership. In that case, plan to sell them together.

Decide also whether a sale is the right transaction. If you want to keep using the invention, an assignment with a license back may work. If you mainly want income, an exclusive license or a licensing program run by an agent may suit you better. Our article on patent licensing companies explains the alternatives.

• Single patent, full family, pending applications or a portfolio.
• Keep related patents together when terminal disclaimers apply.
• Consider a license back if you still need to practice the invention.
• Compare a sale with licensing before committing.

A buyer will not pay for a patent unless it is satisfied that the seller can transfer clean title. Before marketing anything, run a patent ownership search on each asset and compare the owner of record at the USPTO with the entity that will sign the sale.

Under 35 U.S.C. 261, assignments must be in writing, and an unrecorded assignment is void against a later purchaser or mortgagee for value without notice unless it is recorded within three months of its date or before the later purchase. Buyers rely on that rule, so they will expect every link in the chain to be recorded. The USPTO records documents without reviewing their validity, which means the buyer's counsel will also read the documents themselves, identified by reel and frame number, to confirm they say what the index suggests.

Common problems and how sellers fix them:

• Missing inventor assignment: obtain and record a signed assignment, or a confirmatory assignment if an earlier employment agreement already assigned the invention.
• Name mismatch: record the name change or merger documents that connect the old name to the current one.
• Gap in the chain: locate and record the missing assignment, or obtain a confirmatory assignment from the prior owner.
• Wrong patent number on a recorded document: record a corrective document.
• Co-ownership: get every co-owner to join the sale, since each co-owner can generally license on its own, which undermines what the buyer is acquiring.

Encumbrances do not stop a sale, but they change its value and the buyer will find them. Security interests are the most visible, because lenders record them at the USPTO to protect their position. If a loan has been repaid but no release was recorded, ask the lender for a release and record it. If the loan is still outstanding, plan for the lender to release the patent at closing, typically paid from the purchase price, and make sure the release is recorded.

Licenses are harder to see, because a license generally does not need to be recorded and many are not. Prepare a complete list of licenses, covenants not to sue, settlement agreements, standard setting commitments such as FRAND declarations, and any government rights under the Bayh-Dole Act for federally funded inventions. Buyers take the patent subject to existing licenses, so surprising them late in diligence usually costs more than disclosing early.

Buyers price patents largely on remaining life. A US utility patent generally expires 20 years from its earliest non-provisional US filing date, subject to term adjustments, extensions and terminal disclaimers. Maintenance fees are due at 3.5, 7.5 and 11.5 years after grant. A missed fee leads to expiry, and although reinstatement is possible in some cases, buyers see it as a risk. Pay fees that are coming due during the sale process, or agree with the buyer how they will be handled.

For pending applications, check the prosecution status and deadlines. An application that goes abandoned during negotiations can be revived only in limited circumstances, and a buyer will want to control prosecution after closing. Our guide to patent application lookup covers how to find status information for applications.

A buyer evaluates a patent on three things: what it covers, who uses it, and how strong it is. Sellers who prepare these materials up front sell faster and usually for more.

• A summary of each patent: number, title, priority date, expected expiry, family members and status.
• Claim charts that map key claims to products on the market, using public information.
• The prosecution history, so buyers can review amendments and arguments made to the examiner.
• Known prior art and any past challenges, including inter partes review petitions at the PTAB.
• The full chain of title with the recorded documents, plus copies of inventor assignments.
• A schedule of licenses, security interests and other encumbrances.
• Maintenance fee history and upcoming fee dates.

A chain of title report that lists each recorded document by reel and frame, with any gaps already explained, is one of the most persuasive items in the data room, because it answers the first diligence question before the buyer asks it. For more on how buyers think about price, see our article on the value of a patent.

There are three main routes to buyers, and sellers often combine them.

Patent brokers maintain relationships with active buyers, prepare marketing packages and run sale processes in exchange for a commission. They are most useful for sellers without licensing experience and for patents with clear evidence of use.

Patent marketplaces and auctions list patents for sale and let buyers submit offers. They give wide exposure, but listings without claim charts or clean title often attract little interest.

Direct outreach means contacting companies likely to want the patent: competitors whose products read on the claims, companies that need freedom to operate in the area, licensing companies, and defensive aggregators such as RPX and Allied Security Trust. Contacting a company whose products appear to infringe requires care, because a letter that suggests infringement can give that company grounds to file a declaratory judgment action. Many sellers have counsel review outreach letters for this reason.

• Brokers: experienced and connected, paid by commission.
• Marketplaces and auctions: broad reach, weaker without strong materials.
• Direct outreach: targeted, but letters should be reviewed for declaratory judgment risk.

The purchase agreement sets the price and terms, and the assignment document actually transfers title. Purchase agreements usually cover the price structure (a lump sum, sometimes with contingent payments tied to licensing or litigation results), representations and warranties about ownership, encumbrances and fee status, the schedule of existing licenses, any license back to the seller, delivery of files and prosecution records, cooperation obligations for future enforcement, and the right to sue for past infringement. If the buyer wants to recover damages for infringement that happened before the sale, the assignment must expressly transfer that right.

After signing, record the assignment at the USPTO promptly. Section 261 protects the buyer against a later purchaser only if the assignment is recorded within three months of its date or before the later purchase, so buyers usually record immediately after closing. Make sure the patent numbers on the cover sheet are correct, the assignor name matches the owner of record exactly, and any security interest release is recorded at the same time. Sellers should keep copies of everything and confirm that the records show the buyer as the new owner.

• Purchase agreement with ownership representations and a schedule of licenses.
• Assignment that expressly includes the right to sue for past infringement, if agreed.
• Releases of security interests delivered and recorded at closing.
• Assignment recorded at the USPTO right after closing, well inside three months.
• Confirm the new owner of record appears in the assignment records.

Most failed or delayed sales trace back to a short list of avoidable problems. Sellers market patents before checking the records, then discover during diligence that an inventor never signed an assignment or that a merger years ago was never recorded. Sellers let a maintenance fee window pass while negotiations drag on. Sellers forget a license granted in an old settlement, and the buyer finds it in a court filing. Each of these can usually be fixed, but fixing them under deal pressure costs time and leverage.

• Marketing patents before the chain of title has been reviewed and repaired.
• Letting maintenance fees lapse during negotiations.
• Leaving old security interests unreleased after the loan was repaid.
• Failing to disclose licenses, covenants not to sue or standards commitments.
• Splitting patents linked by terminal disclaimers between different owners.
• Delaying the recording of the assignment after closing.