PL-X.com:
Turning IPR into gold
by John Boyd
Sometimes, the
best thing that can happen to us is that we don't get what we desire. That's been
the case with US inventor Nir Kossovsky. After he was thwarted from licensing
intellectual property that he himself had created, he became motivated to build
a global market system for buying and selling IPR (intellectual property rights)
online.
When Kossovsky,
40, was a tenured professor at the University of California in Los Angeles (UCLA),
he patented 15 technologies in areas like organo-electronics and flat panel displays.
The patents automatically belonged to the university. But when it failed to license
out even one of the technologies, a frustrated Kossovsky decided he'd license
them himself and put them to work.
But after holding
talks with seven different concerned entities and at least 14 individuals, Kossovsky
got a taste of just how complex and time consuming the business of buying and
selling intellectual property had become. "I negotiated with them all, but with
no result," says Kossovsky. "We didn't complete a single transaction."
But the frustrating
impasse stung Kossovsky into action. His response has been to create an online
marketplace that would make the buying and selling of IP almost as straightforward
as the buying and selling of company stocks. The mechanism for this is the Patent
& License Exchange Inc., or pl-x.com for short, headquartered in Pasadena California,
of which Kossovsky is now president and CEO.
Pl-x.com differs
from the simple bulletin boards that have sprung up to sell new technology in
that it's a one-stop service oriented to the buyer. It provides a secure 24/7
electronic market infrastructure and a suite of software tools that help a buyer
and seller negotiate a deal from end to finish based on a fair market price that
can be independently gauged. Pl-x.com has also brought in partners like Ernst
& Young, Chicago Title Co., and Swiss Re to provide consulting, insurance, and
risk-management services.
The Patent & Licensing
Exchange is a subscriber-based market, where subscribers are first vetted as to
their suitability to become members. They are also required to fill out a disclosure
form that provides the relevant information necessary for the sale of their IP.
"As 'seat-holders,'
or subscribers, they may then use the pl-x.com information and risk management
tools, standard to other financial markets, to buy, sell, or license intangible
assets comprising patents, trademarks, copyrights, and know-how," says Kossovsky.
The seller can
get a monetary evaluation of its IP, using an economic modeling tool based on
real options theory. And to manage the transactional risks involved in buying
and selling online, Chicago Title Company is providing new e-commerce escrow-based
tools and transactional assurance services.
Similarly, Swiss
Re New Markets, a subsidiary of leading reinsurer Swiss Re, has signed up to provide
patent validity insurance to reduce the risk of licensing or buying IP that turn
out to be problematic.
If Kossovsky's
data is even ballpark accurate, an Internet-based market for buying and selling
IP is an idea long over due. Referring to market research findings and the likes
of what IBM, Texas Instruments, and other aggressive US corporations have so far
earned from their IP, Kossovsky says there is as much as $6 trillion worth of
non-performing IP assets lying dormant in the US, Western Europe, and Japan. "And
that's irrational," he says.
Maybe. But as he
himself knows, there are good reasons for the madness. When you factor in complications
such as multiple sellers, multiple buyers, lawyers, venture capitalists, consultants,
and other intermediaries that enter into the mix when licensing IP, many owners--in
the manner of UCLA--end up letting dormant patents, like sleeping dogs, lie in
peace.
Another hurdle
is that, "The (IP) market isn't liquid," says Kossovsky. Nor is there is a "mechanism
available to assign value. And without price discovery, there's no market." Besides,
dealing in intangibles hardly makes for straightforward transactions. Buying a
patent itself doesn't produce a cash flow, says Kossovsky. "Patents give you the
right to produce something. They are like derivatives, or call options. So in
an efficient market they could be nearly as liquid as financial instruments."
On the other hand,
patents can be turned into cash cows by their owners--if they know how to exploit
intangible value, says Bruce Lehman, president of the Washington-based International
Intellectual Property Institute and a board member of pl-x.com.
"TI was one of
the first corporations to understand that intellectual property was more profitable
than actual products," says Lehman. He estimates that TI gains, or has gained
in the past, over half its annual revenues from patent revenues.
Automaker Ford
no longer has a patent department, says Lehman. "It's now a subsidiary of Ford
Technology Licensing Inc.--a profit center." In the same vein, he describes an
IBM lab in Armonk, New York, where engineers spend their days buying products
"and tearing them apart to see if the technology infringes on their patents."
If it does, "They negotiate. But this is hardly a proactive process," he points
out.
Lehman says Japanese
corporations are generally behind the US in generating wealth from their intellectual
property. "They see IP as more of a way to promote exclusivity," he says. "So
manufacturing goods itself is indicative of worth. Yet it's the IP that's really
innovative, that is the first source of wealth."
Proffering data
from the Japanese Patent Office, pl-x.com literature says 67% of Japanese patents
were non-performing in 1997. "In hard numbers, 390,000 patents that were available
for licensing--390,000 lost opportunities to generate revenues and new jobs."
But such negative
numbers only serve to excite Kossovsky, who is becoming a regular visitor to Japan
these days, in order to drum up business. He points to the Japanese video game
and consumer electronics industries as being areas where Japanese firms should
be getting rewarded more for their IP. And given the ongoing financial deregulations
and other changes now taking place in Japan, he believes the timing could hardly
be better for signing up Japanese companies as the first corporations outside
the US to become subscribers to pl-x.com.
As for hard numbers,
he says, "We're exceeding our target, and now have more than 100 entities from
all over the globe winding their way through our screening and admission process."
Names include Kokan Densetsu Kogyo, 3M Health Care, American Biomedica, AcryMed,
Proforma, Profitable Technologies, Inc., and ThermoGenesis Corp. He estimates
about 20% are Japanese. "So we will establish an operating company and mirror
site here (Tokyo) with the help of Ernst & Young," he adds.
Pl-x.com's revenues
will come primarily from commissions made on the value of each sale, or license
transactions. It will also collect annual subscriber fees, though these are being
wavered until January 1, 2001. Trading is scheduled to begin early 2000.
And yes, Kossovsky
has filed for a patent on pl-x.com's business process, but don't expect to see
it for sale any time soon.
John Boyd is a
freelance technology writer in Tokyo.
Contact him at boyd@gol.com.
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