Unit License Rights and the Rise of IP Finance
The world’s first patent exchange is set to open in the near future, with initial listees to be named next month according to IAM magazine. IPXI, or Intellectual Property Exchange International, will be “a marketplace that facilitates the investment in and risk management of IP-related assets.” This market will function much like the Chicago Climate Exchange (CCX) and is conveniently being run by CCX’s former President & COO, Gerald J. Pannekoek.
The basic structure of the exchange will allow investors to trade licenses in patents and other IP holdings. These licenses will then be divided into Unit License Rights (ULRs) whereby investors can buy and sell like any other form of stock. This listing house will not just incorporate private enterprise portfolios but also conceivably the portfolios of many university’s technology transfer offices. For now, membership is open to organizations that are able to submit portfolios for listing that have a combined estimated minimum market value of $50 million, as well as a sizeable and successful licensing history.
It will certainly be interesting to not only see what companies/organizations decide to be the original participants on this exchange but also to see the institutional demand for this type of investing. Certainly IP valuation and monetization is very intriguing and hopefully will offer benefits to large patent holding companies. However, much like other derivatives, monetizing intangible assets is not without risk. While companies such as Ocean Tomo (who is also spearheading the launch of IPXI) have had success in the creation of an index based around patent rights (see Ocean Tomo 300), other so-called “patent trolls” like Intellectual Ventures have not faired so well. In fact, one such company, IP Bewertung, recently filed for bankruptcy after failing to market their patent holdings successfully. In the end, with all emerging investment vehicles, market demand and knowledge of the assets will decide whether IPXI is ultimately successful.
Very interesting concept. The Ocean Tomo guys have had some interesting ideas so I look forward to seeing how this plays out. The key will be if they can get some large, IP-rich companies to participate. We’ll know when the name list is released.
Thanks, I think the industry has huge growth potential, but faces the same scrutiny as other investment vehicles in that institutions are the ones primarily driving the value of the asset. While certainly patents have value in their potential license or recovery in the case of infringement, for the most part the patents that these patent holders control are by and large not being used. Unless a company such as IPXI or Ocean Tomo can really string together a bunch of successful patents, the ULR could ultimately go the way of mortgage-backed securities.
Thanks, JJ Gottschalk, for writing about IPXI and our Unit License Right (ULR)™ contract product. As described in your post, “membership is open to organizations that are able to submit portfolios for listing that have a combined estimated minimum market value of $50 million, as well as a sizeable and successful licensing history.” While this type of Membership of this type is available, IPXI Membership is also open to a larger universe of entities, and exists in the following categories: Founding Members, Regular Members, Associate Members, and Daily Members.
Founding Members are those described in your post – they agree to place patent portfolios on the Exchange having an anticipated minimum aggregate value of $50 million. Alternatively, Founding Members can join IPXI under agreement to purchase all relevant ULR contracts offered on the Exchange.
Regular Members include companies interested in further developing the rules and operation of the Exchange, Practicing Entities required to purchase certain ULR contracts, and Qualified Institutional Buyers. Regular Members make no commitment to issue ULR contracts.
Associate Members include interested parties that are not IP market participants but wish to support the development of the Exchange.
Daily Members are entities that have agreed to become a Member of the Exchange solely with respect to specifically identified ULR contracts only and for a limited time.
More information on IPXI Membership can be found at http://www.ipxi.com/membership