IBM Proposes Creating an Options Market for Intellectual Property

A patent application turned up by the Associated Press reveals that IBM has proposed an electronic trading system that would enable a new kind of derivatives market for intellectual property. In this market, traders would buy and sell "floating" rights to chunks of a company's IP portfolio, thus becoming not only the recipient of royalties from that portfolio, but the designated defender of those IP rights in court, for a limited period of time.

As traders in derivatives are already well aware, there are new and burgeoning options markets emerging not just for stocks and securities, but commodities and other tradable interests. The idea is to enable investors to buy the right to buy or sell a security or other interest at a specified price at some point in the future. A buyer might purchase the right to acquire a set amount of stock at a low price after its trading value has well surpassed that price, or a seller might purchase the right to dispose of stock after its value plummets below a set price - and for this, traders pay a premium.

IBM's idea is to twist the options concept ever so slightly so that it fits around the business of maintaining intellectual property. In its patent application, the company explains, "The general concept of extracting value from a portfolio of assets, for example patents, utilizing a floating privilege, for example a floating assignment privilege, is summarized by...granting to a client for consideration by an asset portfolio owner a floating privilege to a dynamic set of assets, such as a set of patents, wherein the floating privilege is a right to obtain an interest in one or more of the assets in the dynamic set upon the occurrence of a predetermined event."

In other words, imagine an options market where a trader buys the right to obtain an interest in a share of a company's intellectual property, should some event happen. IBM calls this the "trigger event." For instance, someone could purchase the right to receive a set amount of money should a company receive a successful settlement or outcome in a patent infringement suit.

Here's another scenario proposed directly by IBM itself: Suppose a trader buys into a company's IP options portfolio. He doesn't have to buy the right to any specific patent; he just buys into what IBM calls the company's "dynamic asset pool." Suppose next that a third party sues the trader (not the company) for patent infringement, and that the trader doesn't really have any patent portfolio of his own with which to countersue. Under the IBM proposal, the trader may then use his shares of the company's IP pool, choose the appropriate patent concepts from that pool against which the third party would most likely appear to have infringed, and then assert those patents against the third party in a countersuit just as though the company had asserted those rights to the trader directly.

Under such a system, theoretically, the third party in this scenario also would not necessarily need to be the creator or original assignee of any patent portfolio. Instead, she may be an options holder in another company's IP patent pool, exercising her right to assert her patents in court for a limited time, and having already placed a bet on her own victory. Also theoretically, since this is an options market we're talking about, the third party may also have wagered a premium on the possibility of her own suit's defeat.

As IBM implies in its application, since patent rights are assignable already, no change in patent law is necessary in order for such a system to come about. All that's necessary is a processing system (which is most of what IBM's patent application is truly about), and a willing market full of people willing to bet on the viability of others' ideas in a court of law.

IBM predicts that the existence of such a market could lead to an environment where anybody can own patent shares, and anybody can happily sue anybody else, even if the ideas upon which their suits are based have nothing whatsoever to do with the business they're in or whether they're even in a business. "Just because a set of patents is not in a company's business interest," IBM states in its application, "does not mean that those patents will not prove valuable in a future litigation initiated against the company."