Even smart, innovative ideas for new markets sometimes don’t make it.
Intellectual Property Exchange International (IPXI) announced last week to its employees and investors that it was shutting down the exchange aimed at bringing market-based solutions to the IP sector, John Lothian News has learned.
In a company memo to staff and shareholders, Gerard Pannekoek, president and CEO of IPXI, wrote that it appeared that the “time was just not right, and the obstacles – including potential licensees who challenged us to litigate instead of work with them – simply too insurmountable. IPXI’s business model offered fairness and transparency and relied upon patented technology users to be good corporate citizens. In the end, potential licensees made it clear that the only way IPXI would really get their attention was through litigation, and that’s exactly what our business model tried to overcome.”
Indeed. Founded in 2007, the exchange was designed to create a more free and open market for intellectual property, from universities to high tech companies to manufacturers. It also was promoted as a market where owners of intellectual property could more efficiently monetize it rather than simply litigate.
“Ultimately, we were not able to accomplish what I would call the final, final milestone, and that is for our industry to be good corporate citizens and voluntarily take a license to the IP they were using without litigation,” Pannekoek said. “It looks like it will take more than IPXI to get that accomplished.”
IPXI was able to attract more than 70 members to the exchange, including names such as Ford, JP Morgan Chase and electronics giants Sony, Philips and Hewlett-Packard. It held its first initial offering of the tradeable instrument called a unit license right, on July 2014.
In his 2013 MarketsWiki Summer Intern Series talk, Pannekoek told the audience that $1 trillion is invested each year in the United States in IP, which creates an estimated $9.2 trillion in intellectual capital and $500 billion in licensing revenues. Yet, he said it is an untapped source of revenue.
“Companies don’t know how to make money on one of their most valuable assets,” he said, adding that some Fortune 500 companies are sitting on thousands of patents. One company he mentioned, Dupont, only monetizes 5 percent of its patents.
But every market needs to overcome many of the embedded obstacles that stand in the way of more efficient market solutions. Richard Sandor and his team at the Chicago Board of Trade needed to overcome banks who didn’t want to participate in a new fixed income futures market, nor did they want to get into currency futures at the Chicago Mercantile Exchange when Leo Melamed pitched them back in the 1970s. Both markets eventually blossomed as market forces changed.
Pannekoek said he does not believe another attempted IP marketplace will succeed in the United States without more robust laws that prevent IP trolls from suing firms over patents, or stop firms from simply using patented ideas and technologies until they are served with a lawsuit. He added that there needs to be an attitude change within corporate America, regarding the massive untapped value they hold in their patents.
“For the time being, a lot of things will have to change in order for the industry to be ready for a market-based model,” he said. “Unfortunately, the licensing world is still very much focused on litigation. Any new model needs to come with a willingness and deep pockets to litigate. And personally, I have difficulty distinguishing that model with any of the other monetization activities that are currently taking place.”
He said another market, perhaps in the EU or Japan, may succeed if new patent laws and governmental structures created a market where an exchange could succeed.
Many other asset classes have been resistant to changing the status quo. For now, intellectual property seems to be one of them. Even a market such as IPXI, that offered price transparency and standardized contracts, couldn’t entice enough participants to support a market-based solution.