How do we actually structure an open, free-market patent exchange?
(1) How would patent assets be placed on the exchange? (2) How would they be classified? (3) How many shares would be attributed to a given patent within a technology class? (4) How would we initially value them? (5) What market forces would affect value of the patent shares? (6) If I own a technology share (used interchangeably with patent share), what exactly do I own and what can I do with it? (7) What would drive trading on the patent shares? (8) What would incentivize collaboration amongst market players?
In this post, I’ll be discussing (3) share division per technology class.
Each patent exchange may have its own share-division conventions, but they should conform to minimum standard requirements.
When attributing a number of shares to a given technology class, what should we take into account?
We’ll need to account for statistical factors and incentivization factors.
Regarding statistical factors, we’ll need to take into account the following:
(a) Number of patents: The total number of live, issued patents in the technology class. This will be changing over time as patents issue and expire in the technology class.
(b) Patent-asset type: It could be either a Utility, Design, Plant, or Reissue patent.
(c) Total number of claims: Claims define your property right. You can read more here http://www.investinip.com/patent-basics-what-is-a-patent/.
(d) Claim type: A claim could either be an independent claim, dependent claim, or multiple dependent claim. Some could argue there should be no share difference based on claim type, because each claim is in its essence an independent claim. True, but the USPTO charges different amounts based on claim type it issues. (If you are interested in learning more about these, let me know.)
Based on the above factors, an exchange would issue you a number of shares for your technology class-of-assets.
Regarding incentivization factors, the exchange would need to create enough shares off of a single patent asset to enable time-staged sales of technology assets.
Why would we want time-staged sales?
Let’s say Samsung is issued 10 million patent shares in its mobile-device technology class. And let’s say it places 1 million shares, or 10% of the technology class, onto the exchange for sale off of the exchange and into the hands of patent traders.
Once these shares are on the market, the shares will go through price discovery, which is the process of determining the market value of an asset in a free market, through the interactions of buyers and sellers.
If Samsung sold its 1 million shares at $1 per share and share value increases to $3 after some trading of activity, Samsung can sell another 5%, 10%, 20%, etc. of its class onto the exchange at that newly-discovered price.
In this scenario, Samsung would be incentivized to engage in activities that would promote the value of its technology shares.
What activities would those be? We’ll be discussing that in the next post.