IP Exchange ‘Getting Some Teeth’; First Offerings Likely In Autumn

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A new system to more effectively licence technology and facilitate the trading of intellectual property rights will come online later this year – and an increasing number of countries are taking notice. 

The Intellectual Property Exchange International Inc. (IPXI), the world’s first financial exchange that facilitates non-exclusive licensing and trading of IP rights with market-based pricing and standardised terms, will start trading later this year.

“Imagine if you went out and bought a house or a car and there was no secondary market for it. How much would you pay for that house? That’s the issue we’re in with technology – there’s no second market for it,” said Dale Halling, a Colorado-based patent attorney who has prepared and prosecuted patents for a number of large tech companies and start-ups. “That’s why we need something like this.”

IPXI has received commitments from 14 founding member corporate and university IP owners to offer ULR (unit license right) contracts – each ULR contract gives the buyer the right to use the IP offered under that contract for a set number of uses, such as the manufacturing and/or selling of a defined number of products using that specific technology.

Those ULR contracts – which are bought and sold like shares – total about $700 million in commitments for the exchange. There are other levels of membership as well. 

Media kit with press releases detailing members is here [pdf].

“I think all of them, without exception, believe that the current bilateral licensing model is inefficient, non-transparent and in the US specifically, leads to an unlevel playing field with a lot of unnecessary litigation,” Gerard Pannekoek, president of IPXI, said of the exchange members. “I think all of them want to change that model.”

Pannekoek said the first offerings “most likely” will go to market after the summer. IPXI has established both internal and external vetting processes to evaluate each IP offering. Ideally, he said, IPXI would like to go to market with four to five offerings from a diverse IP base – such as from large corporates, labs, large universities, and varying industries. 

But IPXI does “not have a rush to go to market,” said Pannekoek. “Obviously we need to demonstrate to the world that any IP that makes it to a listing to IPXI is good quality and is well priced. Until such time that I’m absolutely confident offerings are going to be successful, I’m going to be cautious.”

Leaving No Stone Unturned

There are currently 29 IPXI members and several different types of membership: 

Founding members – Commit to issuing ULR offerings worth $50 million on the exchange within one year of joining. With 14 founding members, that’s a total of $700 million in IP invested in the exchange to date. Some founding members include: JP Morgan, Ford Global Technologies, LLC, a subsidiary of Ford Motor Company; Sony Corporation of America; Philips Electronics; Com-Pac International; MetaPower, Inc.; University of Notre Dame, Regents of the University of California; Rutgers University; and three Department of Energy national laboratories.

Regular members – These include corporations, universities, and labs that will issue one or more offerings in the future. While membership is required to sponsor a ULR contract, membership does not require a commitment to sponsor ULR contracts.

Associate members – Mainly for IP service providers, this class is for those who want to be part of process and believe in the IPXI model but also believe they will ultimately be retained to provide services to the exchange or potential IPXI issuers (such as law firms, prior art search firms, or valuation firms).

“These founding members believe we’re going to add the efficiencies, transparencies, ease of access and ultimately, we will help them in much more efficient technology transfer – not necessarily just as a licensor, but also as a licensee,” said Pannekoek.

IPXI recently released the IPXI Market Rulebook, which was developed by founding members and outlines the framework by which the exchange will operate. It addresses operational processes such as patent quality vetting, market eligibility, consumption reporting and the creation of various committees.  

On patent quality vetting, in particular, that process takes about 90 days. Once an IP owner has signed an executive summary of the prospectus for the technology, IPXI reviews and researches the market and technology proposed. The IP is then sent to a small selection committee of industry peers not directly involved in that market, to offer an objective view on the strength of the offering. A third-party service provider such as the Nordic Patent Institute is chosen to delve into potential prior art, then a valuation firm like Ocean Tomo or Red Chalk is retained. Potential licensees can access a databank to view any information collected on the offering.

A committee later decides whether to support the offering, then a higher panel gives the final approval to move forward. Then the marketing begins. 

“We basically don’t want to leave any stone unturned as to the strength of the potential offering,” Pannekoek explained. “All that information that we gather is going to be carefully screened and made available to the market place through databanks.”

How Universities, Foreign Governments May Benefit 

The IPXI is particularly attractive to universities, which often have a hard time commercialising their technologies – either because those technologies are in early stages and need significant development, involve great risk, or funding is hard to come by. Plus, pursuing standard licensing agreements with many disparate groups is often time consuming. 

So, “any time somebody comes to us with an idea on how to commercialise technologies, we are all ears,” said Yair H. Harel, director of new ventures at the Office of Technology Commercialization at Rutgers University, a founding IPXI member. “One of the things that IPXI offers that is attractive to us is that they will do basically do the marketing of the technology.”

Rutgers may offer one technology on the IPXI; if that bears fruit, it may add more technologies to the exchange. The current technology considered for offering involves “very unique and advanced technology related to energy storage,” Harel said. “We believe the development component here will not be that lengthy and won’t require a significant amount of money, because the technology is pretty advanced compared to the usual stage of university technologies.”

Because energy storage is needed worldwide, IPXI can help Rutgers seek out users from all over the world – something that would be difficult to do with the limited resources of the university’s underfunded, understaffed tech transfer office. 

“So, you basically put the technology in the hands of people who are well funded and are expected to do a solid marketing job for the technology,” Harel said. “This is a tremendous advantage for us. They are reducing our need to allocate resources to the marketing of the technology, and at the same time, their world-wide exposure of the technology will probably – no guarantee – but will offer the widest possible commercialisation of the technology by manufacturers and ultimate users.”

Pannekoek said dialogue continues with foreign governments about the IPXI. There is “significant” interest from not only the European Commission but specific European nations themselves. But a large hurdle there is that there is no single European patent. 

“I think the IP world is starting to pay attention because this thing is getting some teeth,” Pannekoek said. A number Asian countries, including Singapore, he added, “all are very intrigued by the model. They see the benefit of it, and not just to create another marketplace, but I think the key interest from other governments is what a marketplace like IPXI can do for economic development.”

“Companies not only have a number of tools available to make better research and development decisions … it puts a lot of the lesser resources entities – small and medium-sized companies, universities, labs – on a level playing field with deep-pocketed potential licensees or potential entities,” Pannekoek continued. “By virtue of that, they are now more incentivised to keep on innovating because they now have an outsource model for licensing their inventions. Ultimately, this must lead to a significant increase in innovation.”

Will it Work?

While there is a groundswell of support for the project, some may ask whether the nuts and bolts in IPXI so far will be effective.

Halling said: “I ultimately don’t think the model they have right now is going to work.”

He questions IPXI on issues such as market exclusion, whether the number of ULRs for a patent are limited, what happens if the patent underlying the ULR turns out to be invalid, who is responsible for defending a patent if it is infringed, accounting, and process patents, among others.

“The big problem in patents right now … we don’t have an easy way to clear these rights and that’s what they’re [IPXI] attempting to do – create a very inexpensive way to create these rights” and that’s great,” Halling said. But “I don’t think you can take the commodities exchange model and use it” for patents.

Instead, he proposes something like the model used by the American Society of Composers, Authors and Publishers (ASCAP), which clears copyrights for musicians and composers. Details on Halling’s proposal are here. As for whether IPXI can be used on an international scale, Halling says that’s a no-brainer – once the kinks are worked out.

“One of the things we need is some sort of reciprocal rights around the world,” he said. “Logically, these things should be international.”

Liza Porteus Viana may be reached at lizapviana@gmail.com.

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