A market-based alternative to patent system challenges

• Author: Ian McClure
• Position: Director, Intellectual Property Exchange International, Inc. (IPXI®)
• Pages: 23-25

p. 23WIPO | MAGAZINE

A M A R K E T-B A S E D

A LTER NATI V E

to patent system challenges

By Ian McClure, Director,

Intellectual Property Exchange

International, Inc. (IPXI®)

On June 4, 2013, the US White House outlined an initiative that takes aim at num er-

ous issues which many people believe are problematic for the intellectual property

(IP) market and innovation. Among the issu es highlighted were the lack of transpar-

ency, the need to create a level playing eld betwee n all innovators, and excessive

or frivolous litigation. Gene Sperling, Director of the National Economic Council and

Assistant to the President for Econo mic Policy, wrote in a recent post on the ofcial

White House Blog: “It’s clear that the abuse of the patent system i s stiing innovation

and putting a drag on our ec onomy… it’s time to act.” However, legislative patent

reform of the type being prop osed today in the United States could have sweep-

ing, unintended consequences. When the intended subject of legislative action, for

example, is categorized and dene d by such vague and fast-changing terms as

“non-practising entity” o r “patent assertion entity”, and when those categor ies have

different meaning depending on perspective and disposition, it can be difcult to

tailor the effect of such refo rm.

FLOURISHING M ARKET FOR PATENTS

Over the last decade, the mar ket for patents has ourished. Patent intermediaries,

brokers and other agents have develope d a liquidity pool for patents and patent rights,

including license rig hts, covenants not to sue and other hybrids. These products are

marketed, sold, purchased, bartered, exchanged, traded, consorted, leased and

disposed of just like other assets, goo ds or properties.

However, unlike many other markets, the nascent market for patent rights i s composed

solely of private, bilateral dealin gs. In many respects, the market as it exists today

operates in a rogue environme nt. There is little or no transparency of market informa-

tion or means of identif ying market behavior. The only mechanism for regulating this

emerging market is through the c ourts, where predictabilit y is difcult and barrier s

to entry – high legal costs – c reate the conditions for certain par ties to exploit such

uncertainty. For example, the American Intellectual Property Law Association (AIPLA)

estimates that on average, when betwe en US$1 million and US$25 million is at risk,

patent litigation costs reach US$2.5 million, and w hen more than US$25 million is at

risk these costs reach US$ 5 million. Knowing that the only referee availabl e entails

an investment of this size and that patent litigatio n outcomes are rarely predictable,

certain patent holde rs push for quick cash settleme nts.

In a recent letter to the United States Con gress, 60 US patent law professors

stated that “high litigation costs and a w idespread lack of transparency in the

patent system together make abusive patent enforceme nt a common occur-

rence both in and outside the techno logy sector. As a result, billions of dollars

that might otherwise be us ed to hire and retain employees, to improve exist-

ing products, and to launch new products are, instead, di verted to socially

IPXI, the w orld’s rst nanc ial exchange

for IP licensi ng and tradin g oers a market

alternat ive to litigation a nd private

bilateral l icensing,” says I an McClure.

Photo: IPXI

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