The trendy and fashionable NFT market has a new entrant: patents
Jack Fonss may be making digital history with his blockchain patent.
Fonss and its consulting firm, True Return Systems LLC, are auctioning U.S. Patent No. 10,025,797 on the NFT OpenSea Marketplace. The auction for the patent, believed to be the first to be auctioned as a non-fungible token, starts at around $ 7.5 million.
NFTs are a trending new digital sensation, but Fonss and others are seeing real benefits for digital token technology in the patent space.
A self-executing contract is built into the NFT representing the Fonss patent. When a person purchases the NFT, they get all the rights to the patent, including the right to sue for infringement.
Fonss said the automated contract simplifies what otherwise would have been a “long and tedious process” that can involve awkward document exchange and a series of back and forth.
“We built a very simple contract to be able to transfer these rights,” said Matthew Frankle, an attorney with Haynes and Boone LLP who assisted True Return in the sale.
“We think that’s probably how things are going in the future,” Frankle added, “so we wanted to get ahead.”
Others are trying to push the market in this direction.
The startup IPWe, in collaboration with
Some are skeptical of the technology’s value for patents and note the potential for thorny legal issues, including issues with securities laws. There is also concern about more lawsuits being brought by entities that hold a patent but do not intend to develop it.
Breakdown of actual cases
NFTs have caused a sensation in the sports, music and arts industries in recent months. Christie’s sold an NFT artwork for $ 69 million. The Golden State Warriors have launched an NFT collection, while the musicians sell songs and albums in NFT form.
NFTs are digital assets stored on a blockchain. These can be digital representations of real-world objects, such as a video of sports highlights, and often come with little or no substantive rights to the underlying object. Buying an NFT video of Steph Curry spinning a basketball, for example, doesn’t necessarily mean the buyer owns the clip.
With True Return and IPWe’s approach, the NFT is more than a digital collector’s item – it comes with patent rights. Jeffrey Neuburger, Blockchain Group Head at Proskauer Rose LLP, said the concept represented an example of “true trade allocation for NFTs”.
It is a source of excitement among some who believe that NFTs and blockchain can make it easier to buy and sell patents, providing new opportunities for companies, universities and inventors to make money with their technology. .
Connecting the blockchain to patents can also create more transparency in patent transactions, which are often an opaque process, said Ian McClure, associate vice president for research, innovation and economic impact at the University of Kentucky.
“Blockchain is a key component in helping IP transactions and management run more efficiently,” said McClure.
This is what IPWe and IBM are banking on.
Companies have already created a blockchain patent marketplace, as well as a registry that collects patent registrations. They believe that the representation of patents as NFTs is a crucial next step in making transactions simpler and more profitable.
IPWe said it expects tokenized patents to be on the platform this year.
An intellectual property-focused NFT market could be particularly attractive for companies with large patent portfolios, like IBM, who wish to obtain licenses for their inventions, said Mark Stallion, head of the intellectual property and patents teams. at Greensfelder Hemker & Gale PC.
Automated contracts can reduce transaction times and costs, lawyers say. And the market provides another platform for owners to market their patents to potential licensees, which could attract more of them.
“Unless you are savvy enough to know and follow a particular technology space, you might not even know that a particular technology is available under license,” Stallion said.
The idea of an improved IP marketplace is not new.
Prior to joining the University of Kentucky, McClure started IPXI, a financial exchange for the buying and selling of intellectual property rights. A key premise of the idea was the inclusion of freely accessible and transparent data that was supposed to validate the value of intellectual property.
A big problem that IPXI encountered prior to its dissolution, McClure said, was the lack of predictability of information on both sides of the transaction. If the blockchain had been available, he believes it would have solved this problem.
The blockchain serves as a public ledger, where different users can verify information about the asset and, in effect, hold others accountable. The blockchain is also an immutable record, which means that it generally cannot be changed or altered.
A blockchain-based patent data registry could provide “a public and participatory information database that helps us better understand and trust the probabilities of this patent,” McClure said. This, in turn, could create “better predictability and better deals, if not more.”
Also envisioned are private networks that governments, businesses and universities could use to track their intellectual property portfolios internally. This could have some value for a school like Kentucky, which has several hundred patent assets, McClure said.
“For us, managing every piece of relevant information that would increase or decrease the value of these assets is difficult,” said McClure. It would be easier with “a ledger, immutable information that keeps it all up.”
Duplication of effort?
Not everyone is convinced. Some attorneys question the value of portraying patents as NFTs and say it seems to replicate some things that are already happening. The patent office, for example, maintains public registers with the assignment of patents and other information.
Some also wonder how many companies will be willing to pay to represent patents as NFTs and add them to a public market.
“It doesn’t sound so compelling from a business standpoint,” said Mauricio Uribe, attorney at Knobbe Martens Olson & Bear LLP. He noted that many companies “don’t transfer patents, they don’t publicly identify who they’re licensed to, and there isn’t a huge chain of attribution.”
There are also concerns that government procurement could lead to additional lawsuits from non-practicing entities – companies that don’t make products but make money by licensing or suing patents.
IPWe is led by Erich Spangenberg, who has built a reputation for suing companies for technology patents. Markets could create new libraries of patent assets for entities, like the ones Spangenberg once operated, to make purchases, some lawyers say.
They also note that NFTs can offer co-ownership opportunities, where small investors buy fractions of NFTs.
“This is another way of raising capital for litigation funds to assert these patents,” said Cindy Yang, lawyer in the IP division of Duane Morris LLP and leader of the FinTech Industry Practice Group.
Confidentiality, Securities Concerns
Other uncertainties regarding NFT patents in public markets exist. It’s unclear, for example, how public platforms will handle the confidentiality of transactions and royalty flows, which is often prized in patent transactions, lawyers say.
There are also questions about whether fractional sales of NFT could risk violating securities laws. At the Security Token Summit last month, SEC Commissioner Hester Peirce suggested that fractional NFTs could run the risk of being unregistered securities.
“You better be careful not to create something that is an investment product because it’s security,” said Peirce.
Yang noted that anti-money laundering regulations can also arise when patents are represented as NFTs in a market. The Financial Action Task Force, a Paris-based watchdog group, released guidelines last month explaining how these rules are applied to virtual assets.
“Depending on how these things are constructed and how they are presented, you start to deal with other issues that we don’t normally see in the patent space,” Yang said.