Licensing intellectual property has traditionally been inefficient, opaque, expensive and inclined to legal action, but the chief executive of Intellectual Property Exchange International believes he has the answer. 

“What? You want to trade intellectual property?” was often the response that Gerard Pannekoek, president and chief executive of Intellectual Property Exchange International (IPXI), got when he explained the concept behind his exchange. However, “the overall response was one of intrigue”, he says. As the former president of the Chicago Climate Exchange, Mr Pannekoek is used to trading in the unconventional.

He explains that he was astonished by the inefficiencies of the intellectual property (IP) market. Inventors wanting to license their patents have to negotiate with each company that may be interested, which makes it more likely they will only deal with the biggest companies. Meanwhile, all those companies have to do their own due diligence and cannot be sure if they are getting a good deal if they do use the patent.

“The current model of bilateral negotiations is extremely inefficient, non-transparent, has high transaction costs and has become very litigious,” says Mr Pannekoek.

Huge potential

Added to this, the potential of the IP market is huge. Various studies estimate that more than 80% of the S&P 500 companies’ market value is in intangible assets – often IP and patents – and Mr Pannekoek adds that less than 3% of all patents generate income. “It is an impressive market that is largely untapped,” he says.

IPXI’s answer to this has been to address the inefficiencies in the market and use the initial public offering model for inventors looking to non-exclusively license their IP. Details of the IP are published in a prospectus, with additional documents available in a data room, and the patents are “thoroughly vetted quality patents that the market wants at a price the market wants,” says Mr Pannekoek.

For companies with non-strategic IP assets on their balance sheet, it is an opportunity to generate cash for a dormant asset. Some companies may have strategic IP that gives them a competitive edge, but often, notes Mr Pannekoek, there is IP that has been acquired in the research and development process that is not strategic and can be of use to other companies.

First offerings

IPXI launched its first offerings in July 2014 in two tranches of patent rights to JPMorgan Chase’s prepaid card technology. The offerings come in the form of ‘unit licence right contracts’, which are standardised, exchange-traded and non-exclusive patent licence rights. Each standard contract allows the buyer to produce 100 prepaid cards using the patented technology. These contracts can be purchased in multiples, so 10 contracts would allow the production of 1000 cards.  

The exchange has been in the making since 2009 and now has the support of investors – such as CBOE Holdings – and a number of members, which include technology company Philips, electronics firm Sony and car-manufacturer Ford, as well as a number of universities.

Five years for IPXI to become a reality may seem a long time, but Mr Pannekoek explains that a lot of work had to be done in changing the way that the IP industry does business. “Effecting change is something that we as humans do not like to do,” he says. The new exchange also had to be commercially viable and for this reason Mr Pannekoek approached the 10 largest IP owners and gathered them in Dallas for three days to develop a model that would work for them.

Industry breakthrough

That led to the first real break, he says, in the process of creating the exchange and from there he had to get commitments from companies to list their IP. Philips was among the founding members that committed to listing its IP, and from there IPXI found investors.

Now that the infrastructure has been built and the concept is being accepted, Mr Pannekoek says that IPXI has received interest from Europe and Asia, where people are recognising the benefits of his model.

The first buyers of unit licence rights have come to the market, but Mr Pannekoek is not expecting a big bang moment for IPXI. He expects the exchange to progress slowly and steadily, much in the same way as other exchanges have in their early years. With futures, commodities or stock exchanges, Mr Pannekoek says: “People tend to forget they all went through the same build-up process that we are going through right now.”

Mr Pannekoek’s aspirations for IPXI are for it to be the dominant global marketplace for IP transactions. From a social perspective, his vision is more about unleashing innovation and giving smaller companies access to the technologies they want to use, as well as creating a level playing field for companies that want to license their patents to others and monetise their innovations.

He says: “The marketplace creates that level playing field. We believe that technology transfer will become so much more efficient and become a driver of innovation from both sides.”

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