For a patent exchange to exist, there would need to be a number of patent holders that supply patent assets to the trading market. A number of questions naturally arise: (1) Who would be the parties to supply the patent exchange? (2) What are incentives to supplying the market, taking into account (i) disadvantages of traditional monetization means and (ii) advantages of a patent trading market? (3) What are the logistics of placing a portfolio on the market, taking into account (i) mechanisms to generate revenue for patent suppliers, (ii) patent portfolio groupings, and (iii) how would patent holder enforce its publically-traded patent against a competitor, if it needed to?
In this post, I’ll be discussing (3)(iii) logistics of placing a portfolio on the market, taking into account how patent holders would enforce its publically-traded patents against competitors, if need be.
The driving factor behind patent valuation is the patent holder’s ability to enforce its patent through licensing and litigation—this is the foundation of traditional monetization means and, further, holds true for patents traded on the exchange.
Focusing on the patent exchange, if a traded patent experiences market adoption and companies are practicing its teachings (i.e., infringing the patent), then this should significantly drive its value upward, because its infringement creates the potential for court-ordered damages awards.
This potential for damages awards provides the backing to a traded patent’s value (i.e., it’s the teeth behind the bite).
Therefore, it is imperative that placement of a patent on the exchange does not impair its ability to be enforced through the court system.
To avoid impairing a patent’s potential for court-ordered damages awards, traded shares on a patent asset should reflect a financial interest, rather than an ownership interest.
To enforce a patent through the court system, you need “standing” to sue. To have standing, you need complete ownership interest in the asset. If an entity with ownership interest is not a party to the lawsuit (i.e., not joined as a plaintiff), then the asset cannot be enforced through the court system.
As such, to enable traded patent assets to be litigated in the court system, without the need for having an untold number of patent traders listed as plaintiffs, its traded shares should reflect a financial interest—not an ownership interest.