IP Exchange

Trading Intellectual Property

In Capitalism without Capital, Jonathan Haskel and Stian Westlake talk about intellectual property being a more valuable asset in the decades ahead than traditional means of production. However, currently most intellectual property, even if the patent has a name of an engineer on it, is owned by a large corporation (such as IBM, Apple, or Motorolla) which benefit from the royalties associated to the licensing and commercialization of the patent.

In the music industry this has been similar where artists (The Artist) produce the work, but record labels manage the profits. Recently, Royalty Exchange started trading in artist royalties. This has been made possible indirectly via publishing platforms such as Spotify, whose algorithms (Spotify’s intellectual property) provide a more effective marketing and promotional opportunity than what traditional record companies could provide — especially for small, new, or fringe artists. As publishing became democratized, royalties became commodities. An artist can now sell part or or all of their projected income (over some period of time or forever) to the highest bidder. This is lucrative — generally speaking money in the bank beats potential money in the future, as the current money can be re-invested. Colloquially, we all know the saying “The bird in the hand is worth two in the bush” and as such $100,000 today is worth more than potentially $200,000 over the next 10 years — moreover, for a person such as myself with no artistic talent, the potential to turn a $100,000 investment into $200,000 (even $120,000) is lucrative, while the immediate availability for $100,000 today allows the artist to focus on producing their next work without worrying about food or shelter.

In Future Shock, Alvin Toffler, talks about Transience as the defining reality of the future. While writing in the late 1960s, he nonetheless presaged the rise of the gig economy, which adopts a revolving door style approach to employment. While companies such as Uber proclaim the benefits to the contract worker (they have more freedom) the real beneficiary are the large corporations that have adopted a business model that allows for the effective replacability of individuals at a minute’s notice. The benefits for a large corporation are huge and we should see companies such as Google and Netflix potentially adopt similar approaches — the open source software community has shown that loosely affiliated coders with no long term commitment can produce high quality software. As the pandemic has made work from anywhere the new reality, and as abilities such as 3-d printing are shifting conventioanl means of production (the digital file that defines the print is worth more than the cost of the printer), we should see a market for individuals building digital tools (blue prints for printing or algorithms for optimizing playlists for example) while holding the intellectual property. Additionally, similar to Royalty Exchange, these individuals can release intellectual property via exchanges that allow folks, like myself, who don’t have the genius to solve these problems, to invest and benefit from the long term royalty payments while the inventors and developers can get enough financial runway to solve the next big problem.

Bottom Line: In 10 years…

In 10 years we should see the penetration of the gig economy into the realm of the knowledge worker which will then democratize the intellectual property of their work. Once that is done, rather then investing in Apple, we will invest directly in the development of new innovations (such as Polar Codes that have been used by Huawei for 5G). This in turn will provide a new explosion of research, liberated from the existing academic or corporate sponsorship model. This is already taking shape but currently is very much at the fringe and the trend seems to suggest this will become more predominant.

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Thoughts. And Illusions.