Purchasing a Patent — Ownership Structures

When you acquire a patent asset, you’ll need to select an entity in which to house the patent assets. 

You’ll need to determine (1) whether to use an entity; (2) whether to use an existing entity or newly-created one; (3) the entity type; and (4) the place of incorporation.

(1) Entity?

If you are purchasing a patent asset, avoid holding them as a personal asset.  Put them into a corporate structure that provides limited-liability protection.  In the worst case scenario, this will limit damages to the assets of the company, and won’t bleed through to your personal assets.

(2) Existing or newly-created entity

If you already own a related portfolio in which you have a monetization plan, consider whether to add the newly-acquired to the portfolio of the existing entity.  As an example, if you have a portfolio you are monetizing against targets in the GPS industry, if newly-acquired assets target the same players, it may add leverage to your existing campaign.

If you can’t add the portfolio to an existing company to bolster a currently-existing campaign, consider forming a new entity. 

(3) Entity type

There a number of corporate structures.  I recommend a limitied liability company for the following reasons:

–LLCs provide single pass through taxation, so you avoid double taxation.

–LLCs provide limited-liability protection (discussed above).

–LLCs do not require a tie between ownership and revenue shares. This provides flexibility for backend arrangements.  As an example, if you provide an inventor with 10% of gross revenues, you don’t need to provide the inventor with 10% ownership of the LLC. 

(4) Place of incorporation

Incorporate the entity in the state in which you plan to assert your litigation.  If you file in the Eastern District of Texas, create a Texas LLC.  If you plan to file in Illinois, create an Illinois LLC. 

Aligning your place of incorporation and filing strategy will be factor you can use against motion to transfers, should defendants file such motions. 


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