United States: A Marketplace For Ideas: 5 Things Companies Should Know About The New IP Financial Exchange

Last Updated: October 30 2014
Article by Armand J. Zottola and Morgan E. Brubaker

Established in 2007 and finally opened in July 2014, the Intellectual Property (IP) Exchange is the first financial exchange in the United States to focus on IP assets. The IP Exchange will facilitate non-exclusive licensing and trading of IP assets. The IP Exchange was founded by a group of organizations ranging from some of the world's top tech companies to universities, banks, and laboratories to provide a more uniform way for companies to monetize IP assets and encourage innovation. Here are five basic things every company should know about this new market-based approach to licensing IP.

  1. Why was the IP Exchange created?
    Licensing of IP is a several hundred billion dollar business in the United States. Further, estimates suggest that more than 80% of the S&P 500 companies' market value is tied to various intangible assets. Despite these staggering amounts, it is further estimated that less than 5% of all issued patents generate income. The IP Exchange claims identification of two distinct inefficiencies in the IP marketplace that have significantly limited growth: (1) lack of transparency in pricing and license terms, and (2) difficulty in connecting sellers and buyers. The IP Exchange hopes to eliminate these inefficiencies by providing a stock market-type forum with standardized licensing terms, published pricing, and a marketplace with more accessible information about what kinds of IP assets are available for licensing.
  2. How does licensing on the IP Exchange work?
    The IP Exchange has developed its own standardized form of licensing called a Unit License Right (ULR) contract. The ULR contract is a non-exclusive license right which is offered to whomever wants to purchase it (i.e., it is non-discriminatory and open to all participants in the IP Exchange). Each ULR contract contains standardized terms which are set by the IP Exchange and priced and sold based on a standardized technology unit. The unit-base is uniquely determined jointly by the IP Exchange and the IP owner (called a "sponsor" on the exchange) for each product and is measured by numbered units, kilograms, square feet, or other metrics depending on the type of technology. Each purchaser of a ULR contract is granted the right to use the IP for a pre-established number of units or instances. Once a purchaser uses or exercises its purchased instances, the ULR contract is terminated. If a ULR contract is not used or exercised by its purchaser, it can be traded further on the electronic trading platform maintained by the IP Exchange.
  3. How are the prices of IP assets set on the IP Exchange?
    Modeled after a stock initial public offering, the ULR contracts are first marketed to investors to gauge interest, priced, and then placed on the marketplace. The price of a ULR contract will then begin to fluctuate based on the market demand for the particular asset. ULR contracts can be purchased and traded by companies that wish to use the contract or by professional trading firms that wish to invest in and trade IP-based contracts.
  4. What are the current ULR contract offerings on the IP Exchange?
    There are currently three different ULR contracts on the IP Exchange. (1) The OLED Unit License Right is a portfolio of 600+ patents relating to Organic Light Emitting Diodes (OLED) technologies for display panel applications. A recent price of an OLED ULR contract was $36.00. (2) The SVC Unit License Right is a license to a portfolio of 17 U.S. and four U.K. patents relating to prepaid stored value card (SVC) technologies. A recent price of an SVC ULR contract was $5.00. (3) The upcoming WFN1 ULR Contract is sponsored by multiple companies and will include a portfolio of 194 U.S. and foreign patents that cover technologies used in wireless chipsets that comply with the IEEE 802.11n Standard. More offerings are expected to be made available.
  5. What are some of the benefits of the IP Exchange?
    A possible and potentially significant benefit of the IP Exchange and the ULR contract model is a decrease in the associated transaction costs for both technology creators and technology implementers. Many ULR contracts are pooled from multiple IP asset owners into one ULR contract (or unit). This allows many different companies to share in the transaction costs of selling their IP, and reduces the transaction costs for the buyers who can now access the standard ULR contract from a single source. Under traditional circumstances, an IP holder would need to negotiate separately with each potential licensee and would have to manage each contract throughout its lifecycle. On the other side, licensees would need to conduct their own due diligence on each IP holder with respect to the validity and ownership rights of the IP and the IP holder. All of these activities take time and money thereby reducing the total amount of licensing that occurs in the marketplace. The IP Exchange conducts its own due diligence on an IP asset before such asset is admitted to the market to ensure that the asset is strong enough from a technical and legal perspective to be licensed. Additionally, the IP Exchange web site allows the public to view the exchange's analysis of its investigation of the IP assets. By reducing the transaction costs for both IP holders and IP buyers, the IP Exchange hopes to maximize the volume and ease of IP licensing.

Although the only IP assets currently listed on the IP Exchange are patents, the IP Exchange may be used in the future for licensing other types of intangible assets such as copyrights and trademarks. The potential for the IP Exchange is interesting (and possibly significant), and any company that wishes to monetize its IP assets, or is looking for a place to find and license IP assets for its business, should consider the IP Exchange. Venable will provide further updates and analysis on the IP Exchange in the future.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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