Patent Market Pending

Japan is a treasure trove of high-tech intellectual property rights, so pl-x is setting up an online marketplace where they can be traded.

For reasons that are cultural as much as anything, Japan is behind the US when it comes to the commercial exploitation of IPRs. Not that the market for licensing IPRs isn't big in Japan. It's huge, and -- with Japanese companies pouring vast R&D funds into robots, nanotechnology, mobile devices, LCD and electro-organic displays, artificial intelligence software, biotech, and Web-based business models -- it's only getting bigger. (A Harvard Business School case study reports that Japan is the largest consumer and supplier of US IP outside the US.) In September, some estimates put the total value of IPR licensing earnings in Japan at more than ¥1 trillion. The problem is that, overall, such earnings are surpassed by expenditures for IPRs.

Enter pl-x K.K., a joint venture between California-based The Patent & License Exchange Inc., Softbank Finance Corporation, and Itochu. The venture aims to provide improved IPR marketing services to Japanese businesses, universities, and organizations. In the US version, pl-x.com operates as a marketplace for companies wishing to buy or sell IPR. The site provides members with transaction assurance, patent validity insurance, and a rational valuation system based on the theory that IPRs are equivalent to call options on a particular technology. The site makes money by charging fees to sellers, ranging from 5 to 10 percent of the agreed-upon price. So far, more than 400 companies, universities, and research centers have subscribed in the US, and the company claims to have some $34 billion worth of IPR assets under management (it won't release sales figures).

Of course, an idea that takes off in the US won't necessarily do so here. Hyperconservative members of Japan's IPR community may not take to a Web-based solution, dooming any electronic attempt to disintermediate them. In 1999, according to the Japanese Patent Attorney Association, only 211 out of 4,700 applicants passed the patent attorney examination, for a success rate of just 4.5 percent. As with civil and criminal lawyers in Japan, the supply of patent attorneys is kept low, apparently to keep demand and prices high.

Further, buying and selling patents -- whether online or via pony express -- simply isn't common in Japan. It's especially rare for purely domestic Japanese companies to trade IPRs with foreign firms, although global players like Hitachi and Sony have done so for years.

"Until 10 or 20 years ago, Japanese companies didn't buy patents from other companies. Their R&D employees, who regarded such trading as a sabotage of the R&D department, wouldn't let them," says Yasuyuki Hata, a patent attorney working in Tokyo. "The patent exchange market will grow in the future, but it could take several years to become a real market."

Hata thinks ordinary companies will be reluctant to purchase patents in order to develop new products, but he concedes that their mood is changing, due in part to the fact that many Japanese companies have lost patent lawsuits overseas. "And recently," he adds, "companies are trying to review investment effectiveness and concentrate on in-house R&D for the most important patents, while purchasing low-priority patents from other companies."

One interesting factor in all this is the traditional Japanese corporate patent strategy, where patents have long been viewed as aggressive tools to exclude competitors from entering a market. Companies in the US have only just begun to use patents in this manner. "I would say some 90 percent of Japanese patents are unused because companies submit many patents in [each] competitive area, so that other companies won't get into the area, or so that they can cross license if they receive complaints about IPR violations," says Hata.

In the meantime, domestic competition for pl-x K.K. is starting to appear. BIT (Business Information Technology) Japan and the Nomura Research Institute said in early December that they will jointly establish a new Patent Science Association in 2001 to provide IPR-related services to Japanese companies, including assistance with adherence to global standards and accounting evaluation. The association will help Japanese companies devise effective IPR strategies based on their global business requirements. And in a direct commercial challenge, Fuji Bank said it would start a patent marketing service early in 2001 for Japanese companies hoping to buy foreign patents. The service, to be offered through Fuji Research Institute, will provide bilingual listings of available patents on a Web site, and Fuji Research Institute will mediate negotiation between buyers and sellers.

Clearly, it's the start of a new era in IPR exploitation in Japan, and there's a lot of potential. pl-x may have been the first online patent marketplace to launch here, but whether it's got a lock on the idea remains to be seen. Perhaps it can buy a patent on the idea.