The buying and selling of brainpower
May 25, 2000
by Adam Feuerstein
Wednesday's pairing of Internet Capital Group (ICGE) and IBM
(IBM) to form an online marketplace for intellectual property is just the
latest entry in what is becoming a very active segment of the
business-to-business market.
It's a lot easier to conceptualize a b-to-b Net market for auto parts,
medical supplies or stainless steel (to name just a few), but upstart
companies such as Uventures.com, IPnetwork, TechEx and Patent
& License Exchange believe they can create online marketplaces
where ideas are bought and sold.
"There are a lot of researchers out there sitting on patents that don't
have the resources or time to commercialize them," says Craig Zolan,
co-founder of Uventures.com, which acts as a matchmaking service
linking government and academic-developed technology with willing
buyers in the private sector.
Schools pinched
For every large research university like Stanford, which staffs a large
"technology transfer" office, there are dozens of smaller schools and
research facilities that don't possess the resources to capitalize on the
brainpower of their researchers, says Zolan.
As proof, he quotes a survey from the Association for University
Technology Managers, which reported that in 1998, North American
universities spent $24 billion on research and development, but realized
only $739 million from licensing transactions.
Government labs are having the same problems, spending $50 billion on
R&D in 1998, while realizing $250 million in technology licensing
revenue, says Zolan, an attorney by trade who started Uventures with
David Batten, a former investment banker.
Prospective matches, no deal
Uventures is just getting off the ground as a marketplace for nonprofit
research facilities. The company has about 4,500 technologies from 50
institutions in nine countries listed on its website. To date, there have
been about 100 matches with prospective licensees, but no deals, says
Zolan. Uventures gets paid a buyer's fee when a technology licensing
deal it arranges is completed.
"We are making the licensing of technology a much more efficient
process, but it's never going to be easy," he says. "There is a lot of
negotiating and due diligence that has to happen before these deals get
done."
Just how large a market exists for the global licensing of technology is
hard to pin down. Zolan says it's a $40 billion market that is growing 14
percent annually. Internet Capital Group and IBM, in their
announcement Wednesday, peg the market at $100 billion.
Until Wednesday, Zolan only had to worry about other similarly sized
rivals in the IP marketplace category. Intellectual Property Technology
Exchange, or TechEx, has built a marketplace focused on the biotech
sector. Patent & License Exchange, another rival, differs in that it is
attempting to set up auctions for patents and other intellectual property.
But the entrance of Big Blue may change the competitive landscape
dramatically. IBM plans to list more than 25,000 of its own patents with
the new, as yet unnamed, IP marketplace, many of which are already
posted online at the company's Intellectual Property Network (IPN).
The new marketplace, which will use IPN as its foundation, will also
benefit from $35 million in funding from Internet Capital Group, a b-to-b
holding company.
The new company will be headquartered in Chicago and is expected to
begin operations during the third quarter, IBM and Internet Capital
Group said.
Several questions remain unanswered about this new IBM-led
marketplace that could determine how much it affects companies such
as Uventures: Will it focus solely on corporate patents or will it also go
after the academic and government markets? And can IBM, as a huge
IP licensor in its own right, convince other patent holders that its online
marketplace will truly be a neutral trading post?
"In one respect, IBM's entrance validates what we've been doing for
the past year, but at the same time, I have a new, large competitor to
worry about," says Zolan.
Trademarks and copyrights too
The other major area of opportunity for online IP marketplaces focuses
on trademarks and copyrights -- items such as corporate logos, cartoon
characters or brand names. Closely held startup IPnetwork.com has
created an online marketplace where IP owners such as these can ink
licensing deals with regular licensees, or create Web-based auctions to
find new avenues of licensing revenue.
"Most owners of copyrights and trademarks only license a small portion
of their portfolios," says Christine Schwarzman, IPnetwork's founder
and CEO. "They simply lack the resources to manage their intellectual
property to their maximum benefit."
Schwarzman, an IP attorney, started IPNetwork last December. She is
also the wife of wealthy financier Stephen Schwarzman, co-founder of
the Blackstone Group, one of the world's largest private equity fund
managers. With that connection, IPnetwork raised $3 million from an
A-list of angel investors, including Dan Lufkin, founder of Donaldson,
Lufkin & Jenrette; Reed Hundt, the former FCC chairman; and
Craig McCaw, the billionaire wireless telecom executive. The company
is now seeking a second round of financing.
Big-time branding
The company has proven that it can line up well-known IP owners as
well. Earlier this month, Harvey Entertainment Co. agreed to offer
several of its intellectual property rights through IPnetwork. The
licensing rights for Casper, the Friendly Ghost, Richie Rich and Hot
Stuff will be offered to prospective licensees in 123 countries through
IPnetwork.
"Using the Internet to create awareness, develop markets and provide
licensing opportunities, online, enables us to further develop our ...
characters into perpetual, profitable brands for the 21st century," says
Rick Mischel, Harvey Entertainment's president and COO.
That agreement followed a similar arrangement inked between
IPNetwork and Marvel Enterprises (MVL), which is offering
licensing rights to the "Marvel Universe" image, a group shot of the
company's superhero characters.
Neither Harvey or Marvel have reported closing any licensing deals
through IPnetwork yet, but the company has coordinated two
agreements so far: one involving a software company that acquired the
rights to some images for the creation of a series of screensavers; and
an event sponsorship deal between Capital One Financial Corp. and the
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