The IP Marketplace and Patent Reform – Implications for Patentees, VCs and the Economy.

With patent reform continuing to be debated in the US and Australia as covered in previous posts, there would seem a heightened emphasis on creating a system that can create a market place for innovation and, importantly, investment. Australia’s National Innovation System Report (venturousaustralia) is a good example. Recently, the following 4 points were identified by the US Federal Trade Commission calling for submissions on the “Evolving Intellectual Property Marketplace” with respect to patent reform in the United States:

“6. How will changes in patent law rendered by Supreme Court and Federal Circuit decisions of the past five years affect the value of patents? How will these changes affect the operation of the IP marketplace? How will they affect innovation and competition?
7. How does uncertainty regarding the validity and scope of patents affect the operation of the IP marketplace? Does the current system adequately fulfill the notice function of patents? How does uncertainty influence the operation of the IP marketplace? What are the sources of uncertainty that affect the value of patents and the operation of the IP marketplace? What could be done to address them?
8. How transparent is the current IP marketplace? Can it be made more transparent? Is that desirable?
9. During the past five years, what new learning has furthered the understanding of the patent system and the IP marketplace?”

On first blush, the questions suggest that the IP market is one that the US is looking to as a means of stimulating not only innovation, but financial markets through heighted valuation of patents. Placing a more concrete value on patents provides, in theory, a more solid vehicle for investment and securitization. Venture capitalists for instance could possibly make more informed decisions when a start-up knocks on the door with a patent in hand seeking funds. With the total asset value of patents worldwide estimated be in excess of one trillion dollars there would seem much room for growth and much needed research. The following article by David Edwards is a good starting point: Patent Backed Securitization.

Accordingly, in light of the recent questions created by the sub-prime crisis, there is a need for investment in other assets. Patents and the IP marketplace may well be the answer. As I suggested in a previous VC-IP post, intangible property could provide a substitute to traditional bricks and mortar that have been typically relied upon as a secure asset. Time will tell…

In the meanwhile, patent owners should see the current reform debates as an opportunity, rather than a drawback on the existing system.