raceThe discussion of how best to create a liquid and transparent market for intellectual property rights never gets old, and every step taken to offer new and complete information to further that discussion is a step in the right direction. The discussion has morphed from ideas to talking points to individual and collaborative research and publications (See Mark Lemley of Stanford Law and Nathan Myhrvold of Intellectual Ventures’ article “How to Make a Patent Market“) . . . and now to the solicitation of service contracts from the European Commission to study and report on the practicability and benefits of a market for IP rights.  (On a similar note, I published a hypothesis on this very subject back in 2007 also, titled “Commoditizing IPR’s: The Practicability of a Commercialized and Transparent International IPR Market and the Need for International Standards“.  In truth, the hypothesis and my understanding of this issue has changed some since 2007, and the paper’s focus would be a bit different now) 

The European Commission stopped accepting tendered bids to perform the study last week.  I truly anticipate the results.  In its solicitation, the EC states as follows:

The objective of the service contract is to explore ways to create a European financial market for IPRs and to enhance transparency and predictability of IPRs transactions. The study will therefore assess the feasibility and the possible benefits of such market for actors like SMEs, universities, research centers or the financial community in Europe.

The study will formulate concrete proposals to address the issues at stake and propose recommendations for follow-up actions at EU level.

This is promising.  While the endeavor will take more than research and information, the potential benefits in creating a robust and transparent marketplace - and an international one even - are many.  An interesting and quite profound excerpt from the tender document was highlighted by Joff Wild over at the IAM Blog:

Traditionally, IP transactions are characterized by (i) difficult acquirer identification, (ii) long periods of negotiation and (iii) endless due diligence activities with uncertain transaction outcome. Especially in Europe there is no contract standardisation and no secondary market for IP licenses that can be transparently assessed - indications are that there is an active secondary market run under opaque practices. The propensity of different sellers not to enforce standard contractual models increases the complexity and the inefficiency of traditional modes of IP licencing.

This language spells out exactly what the market needs - standardization in both license structure and price discovery mechanisms.  Currently, none exist.  The mention of an opaque secondary market for IPR’s, however, is spot on.  There is a real need to bring that secondary market to a common marketplace using standard barriers to entry, standards units of trade, and standard price-setting measures (even if it is just a common body that determines pricing of tradeable IPR units).  The benefits from lowering these transactions costs and uncertainties currently tying the arms of many IP market participants, and especially SME’s, will at least contribute to raising the value of IP because the demand for IP will grow through open innovation processes.  After all, I do believe that one possible measure of the value of IP is the money it can derive on the market . . . but this is not a calculation of the price of a single transaction, but of the volume of total transactions it has the potential to originate multiplied by that price.  Therefore, as the market grows, so does the value of certain IPRs. 

Consider this: A product is only as valuable as the demand for it, but demand can actually be increased by creating a market which better facilitates transactions for that product.  Case in point: the market for used furniture was fairly clandestine until eBay created a robust market where sellers could find buyers and vice versa.  Now, the the lifespan of couches has lengthened, and there is actually a market value for old lamps - all because a transparent marketplace was created.

This entry was posted on Tuesday, June 22nd, 2010 at 8:00 am.
Categories: Monetizing IP, Patent Prospects ~ by Ian McClure.

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