Source: Wall Street Journal
Author: Scott Denne
Zetta is in the business of buying patents from failed start-ups, but its strategy is different from other firms in that field. Most others will hoard as many patents as they can in the hopes that a few will be valuable or that the combined weight of many can be used to coerce a company into licensing their patents.
Instead, Zetta finds start-ups that have potentially valuable patents and enlists the help of the inventors to continue developing them. Rather than relying on litigation and threats, it seeks to sell the portfolio to a big technology company once the timing is right.
The firm enlists the help of the inventors because many of a start-up’s patent applications have yet to be granted, meaning that there’s more work to do with the patent office. Also, there’s often an opportunity to file additional patents based on the start-up’s work, said Come Lague, Zetta’s chief executive.
It’s also helpful to have the inventors on board because they know the start-up’s history and can help Zetta make sure that it has a free and clear title to those patents– something that’s very important when selling them to big companies, Lague said.
When it gets control of the patents, Zetta sets up a separate business entity and hands out equity to the inventors and patent attorneys that work on the deal. It also gives a stake to lenders or investors, depending on the circumstances. When they need additional capital to get the patents or develop them, the firm has a network of “very seasoned” individual investors, Lague said.
Its first such deal came when OQO, a handheld-computer start-up, collapsed in 2009. Though the company wasn’t successful, it held many patents that are relevant to smartphones and tablet computers.
Lague had spent some time as OQO’s chief financial officer and Joe Betts-Lacroix, now Zetta’s chief IP officer, had been OQO’s chief technology officer and the inventor of many of its patents.
Lague and his partners picked up the patents out of a general assignment in 2010, after the company closed, and put to work “an army of people” to catch up on a backlog of paperwork for its patents that had been neglected as OQO shut down.
A little over a year later, the patents sold for a “very good outcome,” Lague said. He declined to disclose the buyer or price, citing a non-disclosure agreement, but filings with the U.S. Patent and Trademark Office show the patents were sold to Google.
“When you’re trying to sell the IP when the company’s closing, that’s the worst time to sell,” Lague said. Using this model, a start-up can reap some return by waiting to sell the patents, rather than selling them as the business runs out of cash, he said.
In trying to sell the OQO patents, the firm got several calls from companies asking if they had other patents, which made Lague and his partners decide there was an opportunity to do more similar deals. Lague says that by taking litigation off the table, Zetta is able to reach more buyers than if they started a conversation with threats.
Some of its other deals include patents from VoloMedia, a maker of advertising software, and Krypton Search Technology, holding company for a sole inventor’s patents around search interfaces and semantic Web technologies.
UPDATE: This story was changed to correct an editing error about the company’s venture backing. Zetta is not backed by venture investors.
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