Erich Spangenberg is the CEO and founder of IPwe, a company using blockchain and artificial intelligence to create the patent asset class. He also was a founder of nXn Partners, a company that is focused on predictive analytics. He was the founder and CEO of IPNav, a company that was one of the pioneers in patent monetization.
AT: Can you give a brief overview of how IPwe plans on revolutionizing the patent market?
EP: IPwe is leveraging technology—in particular, AI and blockchain, experience and changes in market attitudes to create the patent asset class. Billions are spent on regulating, obtaining and maintaining patents and the returns to owners and society are low. We are going to help fix that. AI and blockchain make things much easier to understand and far more transparent. Intangible assets—and patents are one of the key intangible assets for many companies – are just too important to be ignored and left to underperform under the management of people who are not asset managers.
AT: Are you using a public or private blockchain?
EP: IPwe’s Global Patent Registry – the first registry of the world’s patents—and our transaction platform are built on Hyperledger Fabric. After evaluating other solutions, we concluded that our market is best served through a private blockchain—we are not dealing with a fungible commodity where issues of who you are transacting with are not of any importance. We will be building public components as part of our product roadmap—but it will take time for the market to accept these solutions.
AT: How will you educate companies to register patents on the blockchain?
EP: We are fortunate that our management team is well known in the space and has extensive connections with key players in industry and the nonprofit and government sectors. Leveraging these connections, we reach a large swath of the world’s patent owners. In 2019 you will see IPwe more aggressively advertising and raising its profile.
AT: One of your goals is to enable the easy access to any patent from any office in the world. What incentive will those offices have to use the blockchain?
EP: Many of the world’s 200 patent offices already understand the importance of blockchain and its ability to increase transparency and improve things like how title is recorded. The most forward-thinking offices are already in conversations with us and we will be publicly announcing initiatives with them in 2019. We are not selling anything to these patent offices—we do not seek revenue from patent offices. What we offer is a way for these offices to better fulfil their public mission. Will all of them participate? No, as there are some offices that harbor curious beliefs that their mission is to do something other than serve innovators and society—we wish them well and believe they will soon enough recognize they can play an important role in improving the patent system.
AT: The IPwe blockchain is linked to your patent analytics platform, Zuse. Can you explain how Zuse is able to both estimate the worth of a patent and its validity?
EP: Zuse has been under development for 10 years and is the only analytics system that we are aware of that can lay claim to being central to and directly involved in over $3 billion of identified licensing and financing transactions and raising over $1.4 billion of capital as part of a strategy to invalidate patents. Zuse has been used by experts in recent US patent cases. The “how” is fairly complex and white papers are available on our website for those who want to dig deeper, but the system closely mimics the methodology experts use to assess validity. Our valuation efforts are progressing and we will be announcing an initiative in December as part of a joint effort with key industry, accounting and academic participants that will advance patent valuation to a new level.
AT: One of the intended goals of IPwe is cheaper patent transactions. How will the blockchain help with these cost savings?
EP: We have already announced our pricing for traditional transactions – 10% of the purchase price or license price– which compares to current market rates of 25%–and pricing for other services that owners pay for things like annual maintenance fee that are over 50% lower than what patent owners currently pay. We use a variety of technology–including smart contracts built on Hyperledger–to lower transaction costs. Since we are making the pie bigger, there is still a critical role for legal, broker and other patent service providers that we want to work with the improve the system and increase the transaction volume. A key goal of IPwe is to dramatically lower the cost of patent ownership.
AT: IPwe did not pursue an ICO – happy with that decision?
EP: An ICO was not a viable option for IPwe. At the end of the day we are a B2B market solution. Today most large companies simply cannot get past the regulatory issues raised by traditional ICOs. This will change—but it will take time. We also believe that forcing customers to transact with you only through a single purpose token is not a viable way to transact or build a platform.
AT: How about security token offerings—do they play a role in IPwe’s future or the future of the patent market?
EP: STOs are something completely different from ICOs in our view. We are huge fans of regulatory compliant STOs and will use STO structures for both IPwe and for our patent finance solutions. This is a huge development in the patent space that will become apparent soon when we announce our first two STO financings next month.
AT: It doesn’t sound like IPwe is seeking to eliminate intermediaries that exist in the current patent market—why?
EP: Patents are in fact complex assets and certain intermediaries will play a critical role going forward and some, we expect, will either change their business models or disappear. Many enjoy singling out lawyers as non-value creating intermediaries, and while this may be true in some contexts, it is not true in the patent space. We think their role might change as they will become focused on higher value services, but we believe they play an important role in the new market IPwe is helping to create. The patent intermediaries that charge exorbitant rates to, for example, do nothing more than make annual payments to patent offices – we think their days of exploiting these types of inefficiencies are limited.
We think some of the abuses and negatives in the system—patent trolls, efficient infringers and lower quality patents, for example, will be addressed and remedied by these same changes. The intermediaries that embrace AI and the transactional efficiencies that can be realized through blockchain and focus on high value services are going to do even better as the market expands. The sloths and luddites will disappear.
AT: If we visit with IPwe again in a few years, what will we be talking about with respect to patents and the patent market?
EP: The biggest changes that AI and blockchain are going to facility is that new managers will likely take over the patent asset class and, as capital becomes more comfortable with patents, patent based financings will dramatically increase and large and small patent owners will regularly use patents to access capital. Intangible assets – which includes patents – are a majority of most companies balance sheets. Today, these assets are largely managed by departments other than finance and not well understood by finance types. This will change and it will be a change for the better.