A Significant Secondary Market IP Assets

People ask me, “If intellectual property assets now represent most of the value of companies today, why is there no place to cash them in?” The truth is that establishing a secondary market where IP assets can be freely exchanged for cash or goods, like hogs, gold, corn or hundreds of commodities has been difficult. Of the dozens of exchanges and auctions that have sprung up over the past ten years, few have survived.
The breakthrough appears to have come, however, in August of 2005 when Ocean Tomo, a Chicago-based IP merchant bank, announced its first live patent auction.  Highly publicized and attended auctions are being held twice annually. For details, go to www.OceanTomo.com.

Primary Modes of Monetizing IP Assets

To date the primary ways to monetize IP assets continue to be:

1. Out-licensing. (Out-licensing is a major topic and is treated elsewhere in this web site. Click here for information on out-licensing, in-licensing and cross-licensing.)
2. Sale, and
3. Collateralization.

Sale

The sale of IP assets typically occurs in the context of the sale of business assets or an entire business. To obtain full market value for the IP assets wrapped into a business or business asset sale, it is of utmost importance that due diligence be performed to identify all IP assets that might have value, and to obtain a competent valuation of them.
Too often, in the rush to close, the book assets are carefully looked over, but valuable IP assets are overlooked.

Collateralization

In the past when lenders took a security interest in physical or financial assets, IP assets were often “thrown in” for good measure, with little or no consideration given in return. In the Internet Economy, however, with companies “going soft” in a rush, and turning to virtual manufacturing and business based on businesses methods, lenders are being forced to use softer assets as collateral.

Financial institutions have developed a $200 billion annual business in asset-backed securities. They are now beginning to accept IP assets as security for loans. In 1997 Prudential Securities issued $55 million worth of bonds backed by future record royalties from rock star David Bowie. The success of these so-called “Bowie Bonds” has led to the securitization of other IP assets, and the movement is expected to expand into patents and other IP assets in the coming years as lenders look for collateral in the now-predominating softer assets.

It is critical if you seek to use IP assets as collateral to support a financing, to identify all IP assets, and to obtain an objective valuation of the identified assets from a competent valuation firm. The value of IP management processes which identify, log, track and quantify your IP assets becomes increasing important in the Internet economy. One obvious reason is to increase corporate awareness of the extent and value of its IP asset holdings which might be used to collateralize a loan.