Rejuvenating Patent Monetization Using NFTs
NFTs are similar to cryptocurrencies in that they represent digital assets and can be exchanged and verified using a blockchain. However, as the name suggests, NFTs are designed to be “non-fungible” in the sense that each NFT is unique and representative of a real-world object (e.g., a physical sculpture, artwork, or real estate) or an intangible such as a song or digital artwork. This tokenization of real-world and intangible assets provides greater transparency and can also make transactions simpler and more cost-efficient. More of our analysis on NFTs can be found here and here.
NFTs attracted widespread attention this year as a result of several high-profile auctions involving NFTs associated with digital artwork. For example, a collage by artist Mike Winkelmann, better known as “Beeple” in the NFT community, was sold at Christie’s auction house in March 2021 for a record-breaking $69.3 million. Anyone can view the individual images used in this collage, or the collage itself, online for free. Nonetheless, this NFT was found to be worth tens of millions of dollars at auction. In view of this widespread availability, this outcome may appear surprising at first glance. However, it highlights a key value proposition of NFTs: NFTs allow a buyer to claim ownership over the original item, as opposed to a copy. Moreover, NFTs provide built-in authentication via the blockchain, which serves as proof of ownership. As illustrated by these auctions, in some instances digital “bragging rights” regarding ownership of an intangible asset may also be considered a source of value.
To date, public interest in NFTs has focused primarily on the art world. However, NFTs are poised to shake up the patent landscape later this year. IBM and the global patent market IPwe have partnered to launch a platform that will allow patent owners to generate and sell NFTs representative of US and foreign patents. Assignments and licenses associated with these patent NFTs will be stored in a blockchain network hosted on IBM Cloud and powered by IBM Blockchain.
This new marketplace may present an attractive option for companies looking to monetize their patent portfolio or to acquire new patents.
- Theoretically, when a patent is tokenized into an NFT, it can be more easily monetized (e.g., sold, traded, etc.). Using the features offered by blockchain technology, a smart contract can be built into the token with a unique set of terms catered to the patent. This enables patent owners to dictate a plethora of conditions including how the patent is used, the time length of usage, who can license the patent, who can commercialize the patent, etc. A breach in the smart contract would automatically trigger a predetermined violation agreement, which can potentially prevent unnecessary disputes between parties.
- This new platform should also make it easier to determine the fair market value of a patent. Because the blockchain tracks the history of the NFT, information such as ownership, licensing rights, litigation, prosecution history, commercialization, financing, etc., is made readily accessible. An investor or analyst may even compare the blockchain of the patent with other patent blockchains to generate a relative monetary value based on comparables – rather than estimate a monetary value in a vacuum.
The monetary value generated by the patent market is approximately $180 billion in licensing and sales. The incorporation of NFTs into these transactions can potentially push this value beyond $1 trillion according to IPwe founder Erich Spangenberg. Although some may be skeptical about whether the patent world will fully adopt this new technology, the biggest player has already taken initiative. In 2020, IBM inventors received 9,130 U.S. patent grants, which was more than any other company. Because IBM has been a consistent leader in the patent world for nearly three decades, the possibility of IBM’s NFT venture being adopted by other companies seems promising.
Arent Fox is a market leader in helping clients navigate the business and legal issues surrounding blockchain technology. We offer a range of client services including acquiring patents, handling IP transactions, and reviewing the legality of contractual clauses used in the smart contracts of blockchain applications/projects.