A patented invention realizes its potential for monetization only after it experiences market adoption. If the market never adopts a patented invention, then it’s worthless.
Generally speaking, it takes about 10 years for the market to adopt an invention on large scale. Once adopted, the patent may be monetized through licensing/litigation, or brokering, which typically showcases monetization potential through licensing/litigation.
But why isn’t there a vehicle to monetize patents prior to market adoption?
If I’m an investor and believe a patented invention has potential for market adoption in the next 5 to 10 years, why shouldn’t I be able to invest and earn a return if it is, in fact, adopted? If I invest early, why shouldn’t I earn substantial returns if the patented idea experiences mass adoption?
This is a basic concept of market trading: I invest in an asset now, based on a calculated assessment that it’s value will increase in the future, at which point I can sell my investment and realize a return.
This market-trading concept is available for nearly every other investment class, whether it be a bullion of gold, an acre of land, or an option contract to purchase, e.g., oil.
If this basic, arguably fundamental, investment concept exists with respect to nearly every investment class, why shouldn’t it be available for patent assets?
It seems the market would greatly benefit with the availability of a trading market for patent assets:
- Less Litigation–this investment vehicle offers a much-needed alternative to monetization through litigation, which can be draining on the system.
- Perceived Value—in a trading market for patents, patents would derive their value less directly from market adoption, and moreso from a perceived potential for market adoption. This would enable investors to speculate regarding the future value of a patent, and trade based on that speculated value.
- More Valuable Patents–currently, only a very small fraction of patent assets are monetizable through traditional means, because only a small fraction experience market adoption. If a trading market opens for patent assets, an investor can earn a return on nearly any patent asset that is traded on the market.
- Derivative Markets–a trading market for patent assets could potentially open the door for options trading and other, creative investment vehicles.
- Commoditization/Liquidity—a trading market can allow patent assets to be more easily evaluated, traded, and exchanged.
Of course, there would be many issues to work out regarding how ownership is affected if a patent is traded on the market, or who would have standing to litigate a patent that has been traded on the market. Nonetheless, it seems to have potential. I would like to explore and develop this idea in future posts.
2 Comments
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Interesting. Valuation based on partial shares of a patent? Would need a way to understand market value on widgets vs. process patents. Gamble upside/downside is huge. We use private equity and IPOs in tech stocks presently but I dig a transparent patent futures market.
Perhaps use Non Commodity based examples for value prop. In fact this reminds a bit of the fee paid to an writer for submitting his/her forward to a publisher. Potentiality. Skew within marketplace and a negative hedge would take place when known patent holders…that were previously successful submitted another patent.
Interesting.
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Author
You’re absolutely right. I see a market developing over the next 10 years for reliable analytics on patent-share value. And you’re right that patent valuation will be influenced by the particular patent holder and their history of enforcement / monetization (e.g., are they well funded, how solid is their other IP, have they won before). I mention a few factors that can affect valuation here: http://www.investinip.com/creating-open-free-market-patent-exchange-parts-4-5-7/.
Others have brought up the point about tech stocks. Difference with patent shares is that you can isolate and invest in particular technology areas, as represented by a patented-technology sector. With a tech stock, you invest in the company as a whole–this may include several technology sectors.
Appreciate you sharing your thoughts. With the recent activity re patent reform, I’ll be posting another series. If something jogs your interest, please let me know.
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