Cheung told Managing IP that when people discuss intellectual property, they often speak of laws and regulations. An intellectual property exchange, a marketplace where parties can engage in transactions such as licensing a bundle of wireless patents or purchasing the copyright to a catalogue of music, would address the economic side of the equation.
“At the end of the day, it’s really about money,”, he said.
Cheung says that he believes IP trading will most benefit small and medium-sized businesses and inventors, as they often have trouble finding a market to monetise their intellectual property.
Playing to its strengths
In Cheung’s ideal IP market, not only would there be the buyers and sellers, but there would also be variety of service providers, from IP brokers to insurers to valuers and legal professionals, to assist in the transaction. It is here where he thinks Hong Kong’s highly developed service sector, especially its financial services and insurance industry, gives it an advantage.
Cheung also said that Hong Kong’s unique political position makes it an attractive place for stakeholders. The city-state’s well-developed legal system makes it an ideal place to structure deals and settle disputes, while its role as China’s entrepot gives it access to well-funded Chinese companies looking to invest. Add to that a relatively low tax rate, and Cheung states that no other city can boast of being “the world’s window into China”.
“A US company selling a patent might not feel comfortable doing the deal in China, while a Chinese buyer might not want to do it in the United States, so Hong Kong is often a good compromise”, he said.
In his push to create IP exchanges in Hong Kong, Cheung has been working and speaking with potential participants ‑ such as buyers, sellers and service providers ‑ to assist in the deals. He is also meeting with entrepreneurs who are interested in building the actual trading platforms. True to his belief in the power of market forces, he said that the different companies will create exchanges and the competition among them will make them stronger. At this time, there are three IP exchanges based in Hong Kong.
The web bazaar
One such exchange, IPEXC , went live in April. Hidero Niioka, the founder and CEO, explained that his web-based platform aims to attract the same underserved group that Cheung focuses on; the small and medium-sized inventor/business. At the time of writing, IPEXC has over 850 patents listed, and over 100 copyrights, trade marks, and designs. Six deals are in the pipeline.
Niioka, a former attorney and investment banker, says that IPEXC’s market research shows that while large corporate rights holders can easily engage brokers, legal advisers and potential buyers, small inventors with only a few patents, even if those patents are potentially game changing, often have trouble accessing these needed services.
Niioka said that IPEXC’s fee model tries to address this issue of access. Rights owners list their intellectual property for free, and are charged a 12% fee once the deal is complete. Discounts are also available for academics and research institutions. Sellers may upload all the necessary documents, such as patent applications, and also additional reports and marketing materials.
Buyers, who Niioka explained are likely to be larger companies, purchase subscriptions to access the IP available for sale. There are two levels of subscription, with the higher tier giving access to more of the supplementary documents from the seller.
Niioka said that IPEXC has a number of advantages over traditional transactions to both buyers and sellers. Buyers and licensees are able to locate intellectual property that is actually available for sale; by contrast, while companies can search patent databases for newly granted patents, those databases offer no information as to whether the owner is interested in selling.
In addition, Niioka believes that his platform may give the demand side access to more commercially valuable patents; while larger companies offering patents for sale often keep the best ones for themselves, the patent portfolios offered by the smaller inventors on IPEXC are more likely to be “unsifted”.
Niioka also sees added value for IP suppliers. Besides giving small inventors a place where buyers and IP brokers can find their wares, IPEXC also offers what it calls its Crowdlicensing feature. IP owners who choose to use this will have their patent bundled with related patents, though the individual rights holders can still decline any offer from a potential buyer. By bundling, Niioka explained, the IP holders will have more bargaining power, as potential buyers will likely have more demand for a whole set of wireless communications patents as opposed to just one.
A market, not a service
Niioka said that IPEXC works to help facilitate transactions by making information readily available. For example, listings will provide links to the patents registered at various major IP offices such as the USPTO and the JPO. However, he notes that like any market, buyers and sellers have to do their own due diligence and engage their own legal advisers and consultants.
This is not surprising, as markets usually function best when the participants are informed and gather all the necessary information. Still, this raises one of the major challenges involved in any IP exchange, whether the smaller players will have access to the services they need to get the information to properly value their assets and have adequate legal representation.
Peter Cheung argues this is one obstacle that Hong Kong is uniquely capable of overcoming. He says that as the market matures, service professionals will enter to fill the demand, such as insurers and attorneys who will specialise on international IP transactions. Furthermore, he says that he has spoken with service providers who have expressed interest in assisting smaller sellers. He noted that one valuation professional suggested that to evaluate a simple piece of IP, the cost may be as low as HK$5,000 ($645), though more complex deals would involve higher fees.
It is in this role where Cheung sees Hong Kong’s contribution to international IP trading; even if these exchanges are conducted online, he thinks many of the parties will take advantage of the city’s advanced service sector and developed legal systems. He says that IP trading is the next step in the evolution of the city’s advanced service economy.
“Hong Kong should do what it does best, and at the end of the day, we are a city of traders.”