Why is the market for intellectual property (IP) so illiquid and inefficient today? IP is becoming increasingly important in the world economy. This can be seen in the increase of patent application and granting. Contrary to the growing IP assets, the market for IP was still con-sidered small and illiquid. Obstacles hindering the uptake of the IP market are: •
High search and transaction costs for both sides, seller and buyer: There is no transparent mar-ket providing fair value estimates such as ebay.com where inventors or patent owners can look for a market for their IP rights. Further, standardized licensing deals do not exist: most IP trans-actions are based on customized deals and thus require long periods of negotiation and endless due diligence activities, thus, involving a lot of human capital. •
Acquiring patents can be risky since the success can be hardly predicted. Thus the valuation and pricing risk of patents is a hardest to assess. •
Threat of litigation calls for caution among the market participants
Briefly describe the business model and relative strengths & weaknesses of each category of IP intermediaries. As manager of an investment fund, which of the below would you place your largest bet on?
Strengths (+) versus Weaknesses (--)
NPEs /patent trolls (e.g. Acacia)
Non-participating entities that acquire patents & claim the corresponding intellectual property rights by seeking licensing revenue s from com-panies through (threat of) litigation after waiting until these companies have made irreversible investments.
Increasing number of patent infringement
Number of lawsuits filed by NPEs increases
Acacia: $132 million revenue in 2010 achieved through 200 suits since 2005
Most settlements range $50.000 (damage payments amounting to $million are rare) b.
Defensive patent aggregators
Companies like RPX are employed by their cli-ents to identify and acquire patents that might be...
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