Innovation Derivatives Exchange

One of the designers of ThinkerDAO was a founder of Intellectual Ventures, often thought of as the organization that pioneered patents as an asset class. Many groups have tried to build an efficient market mechanism from technological IP assets, but this has largely failed: technology-related intangibles have several properties distinct from other tradeable financial assets that make it unsuitable for classic investment systems, hence the general failure of IP exchanges and auctions or equity style funding of patents, and IP-secured loans, and the concomittant rise of litigation funding. The problem is that intellectual property becomes more valuable as it is diluted and made more available, vs. classical securities that increase in value due to scarcity (this is a reason why open source works). 

For example, for traded assets such as stocks or commodities, the price goes up as demand exceeds supply. Limting supply can increase value. For many technology assets there is a different value mechanism, increasing supply can increase value. Imagine if blue laser or Windows licenses were limited to 1,000,000 units. While each unit license would likely rise in value, the overall value of Windows or blue laser would be limited. This makes investment in Windows as a whole sensible, but it limits the ability to investi in individual licenses or IP rights, since as the owner increases the supply to meet overall demand value, they dilute the individual rights. Investing in fixed percentges does not allow an ecosystem of incentives to market expansion, and any governance that controls supply independent of demand can limit growth. We call this the "infinite dilution" problem.

We designed an open market system that has the correct properties to underlying investment in intellectual property that will allow the creation of scalable exchanges and, in particular, derivative products. We do not expect to deploy this in the first iteration of an Innovation Marketplace, but it illustrates the depth and pipeline of thinking in how to create a healthy and sustainable asset class for innovation. The system is described in the patent application below.

The documents comprise a patent application for a system of creating and trading financial derivatives based on intellectual property (IP) assets, such as patents, trademarks, copyrights, etc. Here are some key points:

• The system uses a series of sequential forward contracts (SFCs) that allow speculators to bet on the future value and demand of IP assets without actually owning or licensing them.
• The system consists of four types of contracts:
  • Contract 1 is an actual license to an IP asset or a portfolio of IP assets, which is a right to use that may be standalone or bundled with a product, service, or artifact.
  • Contract 2 is an IP coupon that can be exchanged for a license at a predetermined price and time.
  • Contract 3 is a seat on a market exchange where IP coupons can be bought and sold.
  • Contract 4 is a seat on a queue for entering the market exchange.
• The system aims to solve the problem of infinite dilution by focusing speculation on controlling the expansion and contraction of the supply of licenses and coupons, and by creating a market mechanism for price discovery and risk management.

The system has several potential benefits for the innovation ecosystem:

• It can provide a new source of funding for IP asset holders, such as inventors, researchers, or entrepreneurs, who can sell their IP coupons or seats to raise capital for their projects.
• It can create a more efficient and transparent market for IP assets, where the prices reflect the true value and demand of the underlying technologies, and where the risks are shared among the participants.
• It can stimulate innovation and competition by encouraging more investment in IP assets, more licensing of technologies, and more adoption of emerging technologies.