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IPXI(1)

 

Our Model

Arrangement

Acts as Agent or Assignment of the Patents and uses a Master License to issue sub-licence known as Unit License Right (“ULR”). IPXI has continuous offering ULR to sustain its business model (ie unlimited subject only to IPXI and patentee’s desire to offer).

 

We only act as an exchange, the Patentee mint his or her own Patent License NFT with our standard license agreement. Patentee decide how many NFT to be issued and the Net-Profit Value (or “NPV”) represented by each NFT that can be covered. NPV is based on actual selling price to retailer less costs of goods sold (input material only). Say it is a software then retail price of software less cost of medium (say CD) only as copying costs nothing to produce the next unit. Excludes R&D, Labor, Capital Equipment, Marketing etc. The number of NFT is fixed for the life-time of the patent and cannot be undo. Patentee is allowed to stagger the issuance. IF there is no portfolio, it is for the potential licensees to shop for all the necessary patents needed from different patentees in combination. In theory, Licensee can buy up all the NFTs to be stand-in as the “patentee” as all the NFTs represent the whole and only right to use. 

NO ROYALTY Method

No royalty and uses Unit License Right or ULR each allowing the licensee holder to consume one ULR for one product result. Say you need to build 100 cars, you buy 100 ULR. The licensee must decide exactly how many ULRs it should buy at the initial public offering or later from the secondary market. This upfront cost and buying to produce further units is contrasted to our “pay as you profit” in buying additional NFT License to cover “excess” net-profits value in our model linked to profitability.

 

We use a “pay as you profit” license based on NPV earned from the patented product which is accounted only at the end of the financial year or 12 months period. Say each license allowed say up to USD 1.0 million worth of net-profit value and the Licensee made USD 1.5 million then he or she need to purchase a second NFT to cover this excess USD 0.5 mio within 1 month (at end of 12 months) else be in default. If there is no profit above USD 1.0 mio or losses then no payment is needed ever. No royalty too. 

First Payment

Upfront for ULR at issue even before manufacturing any patented product. This issue price decided by IPXI.

 

Upfront at issue even before any patent product is produced. Issue price decided by Patentee (reserved price) managed by an auction or buy now.   

Type

Portfolio of patents and IPXI would also do due diligence and combined various patents into “portfolios” for licensing.

 

Single or Portfolio of patents. Say Product X needs Patent A, B, C and D to work, then it is for the Licensee to buy each NFT for said Patents otherwise, it is for Patentees of said Patent A, B,C, D to get together to form their own Portfolio. The main reason we don’t get involve here is because each Patent has their own expiry dates, hence a portfolio may not have all A,B,C,D throughout.

License

ULR License refers to the units of product to produce, terms are standard. ULR is consumed hence one need to buy ULR again to make the next patented product. The manufacturer is ultimately subjected to “patent holdup” by IPXI, the patent holder as well as third party speculators, who become essentially “non-practicing ULR trolls.

 

NFT License comes in standard terms, represent a right to manufacture and profit to a max net-profit value by selling the patented product. Our NFT license is not consumed as in IPXI for each unit of product produced. Licensee can continue to use the license as long as it is within the max net-profit allowed which is determined by the Patentee at the time of minting the NFT Licenses. In the event the Licensee wants to be more profitable by selling more patented product or at high price or reduce the costs of sale then he or she will have to compete to buy a second NFT License to cover excess profits. But this is a choice between wanting to be more profitable or not in contrast to IPXI’s requirement to purchase another ULR just to continue to make the next unit. Furthermore, here the Licensee can adjust selling price or number of units to remain within the NFT’s cover. For example, reduce the price so earning less which is great for users. Hence our model is more flexible as it allows the Licensee to decide how best to serve his or her users and remain in business.

BlockChain

Nil

 

Using blockchain provides for anonymity and transaction tracing, we can “burn” the NFT license when there is a default. Burned NFT will be returned to the market.  Anonymity is great for those Licensee who want to ‘test’ without revealing themselves.

Ex-Post licensing

More likely to go rogue or litigate as URL is part of the manufacturing process where IPXI “manage” the supply of ULR and the remainder hold by NPEs or other manufacturer/licensees.

 

By making ULRs consumable, the IPXI model forces the manufacturer to rely on anticompetitive ex post licensing

 

Less likely to go rogue or litigate given the need for NFT is based on “pay as you profit”. As long as bearer of NFT remain within the covered net profit value there is no further need for NFT is obvious. Licensee can adjust its sale price of the patented product (say lower or make losses) which would benefit end users/consumers to avoid purchasing further NFT. It is also not possible for us to identify the Licensee in the first year hence our recourse after the first year is to burn the NFT in the event of default, ie drawing the Licensee out in a dispute.

 

Ex-Ante licensing

Potential Licensee would purchase the license by competing with others upon IPO.

 

All potential licensees are anonymous and will also be competing with others at IPO.

Information

IPXI provides patent information including claims analysis etc.

 

We do not participate – it is up to the Patentee to provide as much or as little but all information accessible without preferences.

Initial Offer Price of the License

IPXI decides this based on complex process reflecting the patent expert’s due diligence and bids from prospective buyers.

 

This is done by Patentee; it can be free but in most cases by auction method. But more importantly it is for the Patentee to manage and control the issuance of License NFTs. For example say the max is 100 NFT during the life time, the patentee can issue 10 free ones in the first year and if there is demand another 10 next year and so on, ensuring the price of NFT is based on demand tie to net-profitability.

Profit-Sharing

IPXI takes 20% and Patentee takes 80% of ULR at issue. We do not know the profit sharing for subsequent transaction.

 

Patentee takes 90% and we take 10% (as we operate as an exchange) of the NFT auctioned price at issue. We do not take assignment or have master agreements with Patentees. Subsequently for each transaction whereby NFT is transferred in the secondary market, we take 1.5% and the Patentee takes 0.5% of the value transacted. 

NPE or “Patent Holdup” problem

 

Yes by Patentee cum Exchange.

 

Not likely as our Licensing terms required the bearer of NFT to account for how much net-profit value they have produced from the patented technology in last 12 months (max time to remain anonymous). If they default the NFT is burned and return to the market as long as the total NFT will not exceed the fixed during patent’s lifetime. We included this feature so there will be liquidity as there will be “speculators” buying in and out within the limit of 12 months to avoid revealing themselves or as NPE. Unlike IPXI where the Licensee needs to have the ULR to continue production, in our case the Licensees only need them to cover higher profitability, ie “pay as you profit”. Hence the NPE or speculators can only deal with the NFT if they believe current licensees are incentivize to be greedy sufficient to set-off the cost of owning another NFT. There is nothing to prevent shorting these NFTs though except for the ability to borrow. The NFT License also expired when the Patent expired.

Audit & calculation.

Need to audit each manufacturer

 

Need to get a report from the Licensee’s Accountant or by external Auditor about the net-profit value based on patented product. Even if the patented invention is a “small” component in the overall product, the easiest way to ask is question whether the product will operatively function without this patented invention. If answer is “no” then take the net-profit of the whole product. If answer is “yes” then it is likely to be a feature only. If it is only a feature that enhances the overall use or “options” then net-profit value of these options.

Howey Test

Speculators may be caught by profiting for selling ULR but others may see the dominant factor being “consumable” characteristic ie need to be use for making patented product. Mixed motives involved here. In the end, the definition of “security” remains broad and largely uncertain. If have to register as security this means higher costs.

 

Obviously, a license is not a security but there are speculators who buy the NFT in the hope of profiting solely from the effort of the promoter or third party. As I said if there is no effort to show either losses or profit at end of 12 months, the NFT will be burned. For genuine Licensee there is no expectation of profit from others’ effort. Their expectation of profit is in selling the patented product not by selling NFT license. 

1. “The Great Failure of the IPXI Experiment: Why Commoditization of Intellectual Property Failed“ by Merritt L. Steele about the demise of IPXI the first commoditized IP exchange that folded on 2015 March 23. https://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=4730&context=clr