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December 1999 Volume 6 no.12 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 for short, headquartered in Pasadena California, of which Kossovsky is now president and CEO. 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. 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 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

"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, 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

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.'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'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

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