Patent Exchange

Here is an interesting story on OceanTomo’s Intellectual Property Exchange International from the DowJones Newswire — First Patent Exchange To Launch Early Next Year. The purpose of the exchange is to give patent owners a mechanism to sell their royalty rights – thereby creating more liquidity and more price transparency in the IP market. But, as the story points out, there is some concern that the exchange will lead to greater litigation via as “patent trolls” buy up licensing right:

“Whenever anybody aggregates patents, there’s always that suspicion,” said Patrick Thomas, principal at 1790 Capital, a hedge fund that invests in companies based on their intellectual property. But Thomas said Ocean Tomo’s current business based on valuing companies’ patent assets lends credence to the new venture.

I am less worried about the troll aspect of this — trolls will do what trolls do. I am interested to see how it works for providing price setting. As the story notes, “Traditionally, companies hoping to license out patents do so in secret, labor- intensive and expensive deals that can be hard to value properly.”

In some ways this is a derivative market — in that it is buying and selling licensing rights rather than trading the patent (which is what ICP OceanTomo’s patent auctions does). While monetization of IP is a useful activity (and something which Athena Alliance has looked at extensively), it is the actual right to use the patent which most companies care about — not just the renting out their licensing rights. So I am not sure there is enough trading to create the liquidity needed to adequately set prices. Derivative markets, such as this patent exchange, can help set the market price – but can also be way out of line if they are illiquid and/or captured by speculators. A friend of mine tells the funny story of when he, as a journalist covering a certain market, ended up being the “market price setter” when the exchange prices were considered wacky – so much so that apparently companies were concerned when he took a trip for fear of losing him in a plane crash.

So, the exchange is a good step forward. But we should treat it as a pilot – and look carefully as to what else may be needed to both help it operate effectively and to provide the price setting and liquidity the market needs. Most importantly, we need to view this through the lens of our ultimate goal: innovation. For my part, I’m not interested in spurring monetization of intangibles for the sake of creating more trading. I am looking at this as a mechanism of funding – and fostering -innovation. If it doesn’t do that, then it is not worth it.

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