University of St.Gallen
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Creating a financial market for intellectual property rights

abstract In the last decades, the environment surrounding R&D and innovation activities has changed dramatically. Scientific progress, disruptive technologies, accelerated innovation processes and shorter business and product cycles have transformed the world’s economy. Tangible assets are no longer the sole basis of revenues, but intellectual assets have become the main source of competitive advantage. Intangible assets (IA) are intellectual property (whether patents, trademarks, copyrights, or trade secrets), brand value, corporate reputation, franchises, and human capital. As a consequence, many companies already have established an appropriate management to benefit from the generated IA.
Intellectual property rights (IPR), as a type of IA, have finally reached a level of financial and strategic visibility. Becoming aware of the change in corporate value, the strategic use of IPR has shifted from being exploited only internally to an increasing external exploitation. Patents for example are traditionally used to secure rents of innovation by preventing third parties from copying and using the claimed invention, and to ensure freedom to operate. Today patents are increasingly exploited externally. This example shows that IPR-based transactions have started to occur. However, most companies have major difficulties to successfully conduct IPR-based transactions. The IPR market lacks transparency regarding essential market information. Companies willing to trade are not able to gather information about buyers, suppliers, and technologies and IPR offered. This lack of transparency in essential market information leads to high transaction costs. Also uncertainty regarding the quality of the IPR, the value of the IPR, and the transaction process prevent successful IPR-based transactions. Additionally, contracts are not standardized and a transparent secondary market for IPR-licenses does not exists. As a consequence, although managing and acquiring IPR is perceived as playing a pivotal role in global business strategy, the inefficiencies to IPR licensing have become a major hurdle which narrows the overall meaning that IPR is of central importance for the economic growth.
As many firms are not able to overcome these market imperfections on their own, new business models have emerged. Some IPR-specialist firms seek to monetize patents by creating strategic patent portfolios and licensing them to third parties. Others provide electronic platforms to establish online market places where patent and ideas can be traded. An alternative approach is the establishment of cooperative ventures that buy and license patents to its members for defensive purposes. These new firms may contribute to reduce market inefficiencies through additional market knowledge in respect of technologies, networks of potential transaction partners, and valuation experiences. Based on these competencies, those entities can provide information and even finance to facilitate transactions and hence the circulation of patents and other forms of IPR.
The challenge today is to raise awareness, understanding and willingness to develop the financial system and products that will capture the value of IPR as new class asset. One opportunity could be the creation of a financial market for IPR at European level. A single market could promote the circulation of knowledge and innovation avoiding the fragmentation between national markets. This financial markets needs to focus on three parts: providing opportunities for inventors and users to meet and determine the conditions of trade in a transparent way, offering an opportunity to hedge against a risk, and presenting investment opportunities for IPR financial assets.
An ongoing research project on behalf of the European Commission aims to assess the challenges and different opportunities arising from a possible creation of a financial market for IPR in Europe.
keywords Patents, Technology Transfer, Intellectual Property, Financial Market
partner Fraunhofer-Zentrum für Mittel- und Osteuropa
type applied research project
status completed
start of project 2010
end of project 2012
principal European Commission
additional informations
topics Patent Exploitation, Technology Transfer, Financial Markets
methods Qualitativ
profile area SoM - Business Innovation
contact Frauke Rüther