Daniel Hay, CEO of ArchivalCD Inc., has been plagued by cash flow problems ever since a flood wiped out the vital equipment that scans historic documents onto CDs and DVDs in his Crockett, Tex.-based business two years ago. A self-underwritten initial public offering for about $5.6 million seemed the best answer, but that process — launched two years ago — is still not complete. New hope materialized recently, however, when he discovered a potential $10 million cache sitting inside his own company.
"I have a process I think is patentable," says Hay, "and an online intellectual property evaluation tool helped me assess the potential license revenue." Hay came across the tool on the Patent & License Exchange, a site he believes can help him both license his process and shop for complementary processes.
User-friendly tools like the evaluator — more formally known as the Black Scholesbased Technology Risks/Rewards Unit (TRRU) metrics system — are just one factor behind a renewal of interest in patenting intellectual property (IP). Companies large and small are eager to harness the worth of their own IP inventories and to see what they can license from their competitors, and a number of Web sites have been launched to facilitate these and other IP needs.
The $4.6 billion Eastman Chemical Co., for example, has joined ArchivalCD and nearly 400 other firms in using TRRU metrics, along with a variety of other exchange-related tools offered by pl-x.com. William Heise, director of Eastman's licensing division, has just completed the Patent & License Exchange's very first transaction — the sale of a fairly low-value patent to German-based Bruckmann & Kreyenborg Granuliertechnika (BKG). He says that without the exchange, the deal might not have happened. BKG demanded patent validity insurance (which would protect it in the event that the patent was later deemed invalid), but Eastman balked at paying for it. Because the exchange offers such insurance as a perk, however, the companies simply did the deal online.
Improved transaction speed and a wider universe of potential buyers are among the prime reasons Eastman has made the Internet part of its strategy for managing approximately 1,500 patents. "As we close more deals, more revenue flows back to the businesses and more opportunities come our way," says Heise. He is expecting to close up to 14 sales or licensing transactions this year, up sharply from 2 in 1999.
The Patent & License Exchange is one of the most tool-laden online IP exchanges, but it is hardly alone. Mark Haller, head of PricewaterhouseCoopers's Intellectual Asset Management Group, estimates there are nearly 30 such sites in existence. They range from online bulletin boards like yet2.com, to sites like the IBM-backed spin-off Delphion that allow users to research and analyze patents for offline negotiations, to AnIdea.
Virtual venues for less-formal idea exchanges are springing up as well. Boasting participation by such companies as Coca-Cola Co. and International Paper, ideas.com debuted in November to solicit new ideas from Web surfers on items like healthy drinks for kids and three-dimensional paper. Companies post queries, usually with a preset dollar amount to be paid for a worthy submission, and accept both patented and unpatented ideas from Web surfers who agree to the company's terms.
Coca-Cola, for one, is hoping that the Internet system may replace the 1,500 or so unsolicited submissions that trickle in each year through letters, phone calls, and faxes. "In reality, many of the ideas we get have been considered before or have been generated inside Coca-Cola," says Michael J. Kline, the company's patent and technology counsel. By asking more targeted questions to a wider audience, he says, "the dream is we could generate fewer yet better ideas."
While offering a new level of liquidity to the previously sticky market for IP, the online exchanges still have some hurdles to overcome in helping companies transform IP into salable assets. "Intellectual assets are difficult to describe because they are more unique than established hard assets where you see trading sites popping up, like cars and boats," says Haller. Adds Eastman's Heise: "Actually putting something on the Internet is easy — the hard part is deciding what to put there, and how much technology, data, and know-how to put with it."
Alix Nyberg is a staff writer for CFO.