Blog 3: Patent Marketplace

Would it be possible to securitize patents? Financiers in the bellies of investment banks have securitized almost every conceivable modern good, from car loans to home mortgages to pork futures. I believe that it would be very interesting to have a patent marketplace where small companies would be able to raise capital  in the public markets. Additionally, a patent marketplace or a derivative-based patent marketplace would allow investors to speculate on the future value of a patent in the design of a future device. Additionally, companies issuing these patents might be able to structure a patent fixed-income security where the interest payments and the principal of the bond would be backed by the future cash-generating ability of the patent, whether it is licensed out or used for internal development.

Challenges to the idea of a patent marketplace are largely legal. Traditional initial public offerings are extremely complex in structuring and size and often require spending a significant amount of money to pay for  financial and legal advisers. Small private start-ups looking to securitize their patents would be similarly forced to pay fees to have their patents listed on the open market and would likely have to disclose financial and operational information about themselves. Such a glut of information about a start-up whose patent may be highly innovative and yet susceptible to being copied would discourage small companies from listing patents. Large, established tech companies would likely not require additional funding for their patents (Amazon, Google, Apple already have enough cash as is), so the patent marketplace would likely be limited to middle-market sized tech companies between Series funding looking to generate publicity about its patent portfolio.